Price Elasticity of Supply

Question 1

Why can supply be inelastic

Answer 1

when a firm does not have the ability to respond to price changes by changing the quantity supplied to the market

Question 2

PES - price elasticity of supply

Answer 2

A measure of the responsiveness of the quantity of a good supplied to changes in price

Question 3

PES calculation

Answer 3

%change in QS/ %change in P

Question 4

unitary PES

Answer 4

percentage change in quantity supplied is equal to the %change in price

PES=1

Question 5

Perfectly Inelastic PES

Answer 5

A change in price results in no change to quantity supplied

PES= 0

Question 6

Perfectly elastic PES

Answer 6

A change in price results in an infinite change in quantity supplied

PES= ∞

Question 7

Elastic PES

Answer 7

A change in price leads to a proportionately greater change in quantity supplied

PES>1

Question 7

Determinents of elasticity of supply

Answer 7

• mobility of fop (ability to convert them for another good)
• length of time
• spare capacity of firms
• ability to store stock rate at which costs increase

Question 8

Inelastic PES

Answer 8

A change in price leads to a proportionately smaller change in quantity supplied

1>PES>0

Question 9

Effect of length of time on PES

Question 10

Effect of spare capacity on PES

Question 10

Effect of mobility of FOP on PES

Question 10

Effect of ability to store stock on PES

Question 11

How can the PES of multiple curves be compared

Answer 11

• only judging from the point at which they intersect
• the flatter, the more elastic