PRICE ELASTICITY OF SUPPLY Flashcards
what is PES
how much quantity is supplied in response to a change in price
when a pes is bigger than 1 what can we say
the suppky of the good is elastic
when our pes is between 1and ∞
our pes is elastic
if our supply is elastic what does it mean
it means a percentage change in price will lead to a bigger percentage change in quantity supplied, because producers are very responsive to changes in price.
if pes is betwen i an 0
supply is inelastic
when supply is inelastic what does that mean
it means a percentage change in price will lead to a smaller percentage change in supply, because producers are unresponsive to a changein price
if our pes is exactly one
it means the percentage change in price will lead to percentage change in quantity supplied of the same size( unitary elastic supply)
what factors can influence our pes
1.spare capacity
2.availabiliy of factors of production
3.state of economy
4. stock piles and perishability
5. time period
what does spare capacity mean
how much space or capacity businesses have thats spare/ how much space they havent used
lots of spare capacity suggests what
elastic supply
little spare capacity
suggets inelatic supply
very available
elastic supply
good state of economy
inelastic supply
bad state of economy
elastic supply
low availability
inelastic supply
