Price Elasticity of Supply Flashcards
Factors impacting supply
- Material costs/Labour costs
- Population changes
- Natural disasters
- Prospective increasing energy prices shift supply curve to left(less energy is supplied) e.g. Energy bills are about 50% higher than pre-Covid levels
Price elasticity of supply=
Percentage change in quantity supplied of good X/percentage change in price of good X
Price elasticiy of supply-
sensitivity/responsiveness of quantity supplied of a good or service to a change in that price of that good or service
Profit satificer
Wanting satisfactory profits rather than maximum profits. They don’t mind if profit margins drop.
Marker of if you’re profit maximising or not?
Where you are setting your prices at.
Is housing elastic or inelastic?
Inelastic, because:
Takes a long time to build
Costs a lot of money
Low supply of labour force - to address this, more funding of building education(apprenticeships) will provide more skilled builders.
Lack of resources/raw materials - not enough money for imports
Lack of land available: planning policies must change - political issues with building new houses
Government
promise on housing
By the end of 2029, they will have built 1.5 million new houses, but we have to see if they keep this promise or not.
Growing avocados - supply elastic or inelastic?
Supply inelastic(takes a long time to grow trees, then the fruit, then for the fruit to ripe), limited stocks of avocados
Is a ticket to watch Liverpool supply elastic or inelastic?
Perfectly inelastic:
Expensive
Stadium capacity limitation
Supply will tend to be price elastic when:
- Supplier has plenty of spare capacity to increase output(spare Labour, raw materials).
- High stock levels are immediately available to meet rising demand(ease with which stocks of raw materials or components can be bought from outside suppliers)
- There is a short production time frame to get extra production to the market(agricultural goods take several months to be produced
- Ease of factory substitution is high(resources can be reallocated easily)/ease of switching between alternative methods of production(use of capital and labour)
- The more firms in the market, and the easier it is for a firm to enter and leave, the greater the elasticity of supply
Buffer stocks
Spare capacity to increase output: useful when there’s too much demand. Shops are most likely to keep buffer stocks during the holidays/Christmas time.
Impact of selling dates
If we’re selling cans of beans(the sell by date is two years), we ignore sell by date.
Businesses sell these products anyway, as they know this is how ignorant consumers are.
For perishable products with a short span life, like milk, consumers always check the sell by date.
Chancellor role -
Economist who decides the economic policy of the country(what happens with housing/taxes)
Market period supply
When surprised by a sudden increase in demand, firms cannot immediately increase output, so in this market period, supply is completely inelastic, and the price rises to eliminate the excess demand brought about by the rightward shift of the demand curve.
Short run supply
The higher price means higher profits can be made, creating the incentive for firms to imcrease output. In the short run, firms increase output by hiring more variable factors of production, witn the short-run increase in output shown by the movement up a second supply curve which is more elastic than before. In the short run, supply increases and the price falls again.
