Price Elasticity of Supply

Question 1

What is PES

Answer 1

How responsive quantity supplied is to a change in price

Question 2

What are the factors that affect PES

Answer 2

-Spare Capacity

-Availability of Factors of Production

-State of the economy (recession=elastic supply,boom=inelastic supply)

-Stockpiles and Perishability (easier to stockpile and less perishable=more elastic)

-Time (short run=inelastic supply,long run=elastic supply)

Question 3

What does it mean when price is elastic

Answer 3

Firms can increase production easily given a change in price

Question 4

What does it mean when PES is inelastic

Answer 4

It is difficult for firms to increase quantity supplied given a change in price

Question 5

How do you calculate PES

Answer 5

%change in quantity supplied/%change in price

Question 6

A PES between 1-infinty,means that supply is

Answer 6

Relatively elastic

Question 7

A PES between 0-1,means that supply is

Answer 7

relatively inelastic

Question 8

A PES of 1,means that supply is

Answer 8

Unitary elastic

Question 9

A PES of 0,means that supply is

Answer 9

perfectly inelastic

Question 10

A PES of infinity,means that supply is

Answer 10

Perfectly elastic

Question 11

What does it mean when price is unitary elastic

Answer 11

A percentage change in price is met by AN EQUAL percentage change in quantity supplied

Question 12

When PES is elastic,what does the graph look like

Answer 12

Upwards sloping but quite horizontal

Question 13

When PES is inelastic,what does the graph look like

Answer 13

Upwards sloping but quite vertical