Price elasticity of supply Flashcards
Price elasticity of supply
- (PES) measures the responsiveness of quantity supplied to a change in price.
- reflects the ability of producers to change their output following a change in demand and the possible consequences for the marginal cost of supply.
How does the concept of elasticity of supply affects Gov’s tax incidence
Similar to the concept of tax incidence on demand, elasticity of supply is important for understanding how taxes affect producers. If supply is elastic, producers may bear a greater share of the tax burden as they can adjust production more easily in response to changes in price.
How does the concept of elasticity of supply affects Gov’s objective of price stability?
Governments may aim to maintain price stability to avoid inflation or deflation. Understanding the elasticity of supply helps in predicting how changes in demand or external factors will affect prices. Inelastic supply may lead to more significant price fluctuations in response to changes in demand.
How does the concept of elasticity of supply affects Gov’s energy policy?
Elasticity of supply is crucial in energy policy decisions. For example, if the supply of renewable energy sources is more elastic than that of non-renewable sources, it may influence the government’s decisions on promoting sustainability and reducing dependence on fossil fuels.
