Price elasticity of supply Flashcards
1
Q
Define PES
A
Responsiveness of quantity supplied to a change in price
2
Q
What is the formula for PES
A
PES= %change in quantity supplied divided by %change in price
3
Q
Why is PES positive
A
Price and supply are positively related
4
Q
What factors affect PES
A
1) time period ie more elastic over time
2) Are there any barriers to entry stopping firms from enetering the market and providing extra supply eg high startup costs or regulation
5
Q
What values determine PES
A
If greater than 1, price elastic
If less than 1, price inelastic
Perfectly elastic is infinity (horizontal line)
Perfectly inelastic is 0 (vertical line)
6
Q
Why is inelastic supply bad
A
Change in demand is difficult to meet as supply is unresponsive
