Price elasticity of supply Flashcards
What is price elasticity of supply
a measure of the sensitivity of quantity supplied of a good or a service to a change in the price of that good or service
What is price elasticity of supply always
positive
What is the abbreviation of price elasticity of supply
PES
What is the PES equation
% change in the quantity supplied/ % change in price
When is there price elasticity supply
when PES is greater than 1
When is there price inelastic supply
when PES is less than 1
What does the value of price elasticity of supply depend on
how willing and able firms are to respond to a change in price
What affects the willingness of a firm to expand output
wether they expect their price change to be temporary or permanent
What is the short run
the period in which at least one factor of production is fixed in supply
What is the long run
the period in which all factors of production are flexible in supply
What does supply in the long run look like on a graph
more horizontal (more elastic)
What does supply in the short run look like on a graph
more vertical (less elastic)
In the short run what is difficult to vary
capital inputs
In the short run what is easier to vary
labour inputs
What is perfect inelastic supply
a situation ion which firms can supply only a fixed quantity so cannot increase or decrease the amount available
What does elasticity of supply equal when it is perfectly inelastic
elasticity of supply is 0
What is perfect elastic supply
a situation in which firms will supply and quantity of a good at the going price
What does elasticity of supply equal when it is perfectly elastic
elasticity of supply is infinite
What does perfectly inelastic supply look like on a graph
a vertical line from the axis
What does perfectly elastic supply look like on a graph
a horizontal line from the axis
What is PES at each value
= 0 - perfectly inelastic supply
0 to 1 - inelastic supply
1+ - elastic supply
∞ - perfectly elastic supply
what is PES
the responsiveness of the quantity supplied to a change in the price of a product
why is PES always positive
there is a direct relationship between price and quantity supplied
when is PES perfectly inelastic
where there is only one quantity that can be supplied (0)
when is PES inelastic
when the % change of quantity changes by a lower % than price (<1)
when is PES unitary
where the quantity supplied changes by the same percentage as the price change (1)
when is PES elastic
when the % change in quantity is higher than the % change in price (>1)
when is PES perfectly elastic
when there is a horizontal supply line (∞)
what are the 5 factors that affect PES
P - production lag
S - stocks
S - spare capacity
S - substitutability of FoPs
T - time
what is production lag
how long does it take to create the product
long time: inelastic
short time: elastic
what is stocks
how long will the product remain for (can it be stored)
cannot store: inelastic
can store: elastic
what is spare capacity
is there spare capital that can be used
low spare capacity: inelastic
high spare capacity: elastic
what is substitutability if FoP’s
how substitutable they are means it is easier or harder to respond
harder to respond: more inelastic
easier to respond: more elastic
what is time
is it in the short run or the long run
long run: inelastic
short run: elastic
