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micro economics > Price elasticity of supply > Flashcards

Price elasticity of supply Flashcards

1
Q

What is price elasticity of supply

A

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

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2
Q

What is price elasticity of supply always

A

positive

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3
Q

What is the abbreviation of price elasticity of supply

A

PES

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4
Q

What is the PES equation

A

% change in the quantity supplied/ % change in price

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5
Q

When is there price elasticity supply

A

when PES is greater than 1

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6
Q

When is there price inelastic supply

A

when PES is less than 1

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7
Q

What does the value of price elasticity of supply depend on

A

how willing and able firms are to respond to a change in price

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8
Q

What affects the willingness of a firm to expand output

A

wether they expect their price change to be temporary or permanent

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9
Q

What is the short run

A

the period in which at least one factor of production is fixed in supply

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10
Q

What is the long run

A

the period in which all factors of production are flexible in supply

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11
Q

What does supply in the long run look like on a graph

A

more horizontal (more elastic)

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12
Q

What does supply in the short run look like on a graph

A

more vertical (less elastic)

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13
Q

In the short run what is difficult to vary

A

capital inputs

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14
Q

In the short run what is easier to vary

A

labour inputs

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15
Q

What is perfect inelastic supply

A

a situation ion which firms can supply only a fixed quantity so cannot increase or decrease the amount available

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16
Q

What does elasticity of supply equal when it is perfectly inelastic

A

elasticity of supply is 0

17
Q

What is perfect elastic supply

A

a situation in which firms will supply and quantity of a good at the going price

18
Q

What does elasticity of supply equal when it is perfectly elastic

A

elasticity of supply is infinite

19
Q

What does perfectly inelastic supply look like on a graph

A

a vertical line from the axis

20
Q

What does perfectly elastic supply look like on a graph

A

a horizontal line from the axis

21
Q

What is PES at each value

A

= 0 - perfectly inelastic supply
0 to 1 - inelastic supply
1+ - elastic supply
∞ - perfectly elastic supply

22
Q

what is PES

A

the responsiveness of the quantity supplied to a change in the price of a product

23
Q

why is PES always positive

A

there is a direct relationship between price and quantity supplied

24
Q

when is PES perfectly inelastic

A

where there is only one quantity that can be supplied (0)

25
Q

when is PES inelastic

A

when the % change of quantity changes by a lower % than price (<1)

26
Q

when is PES unitary

A

where the quantity supplied changes by the same percentage as the price change (1)

27
Q

when is PES elastic

A

when the % change in quantity is higher than the % change in price (>1)

28
Q

when is PES perfectly elastic

A

when there is a horizontal supply line (∞)

29
Q

what are the 5 factors that affect PES

A

P - production lag
S - stocks
S - spare capacity
S - substitutability of FoPs
T - time

30
Q

what is production lag

A

how long does it take to create the product
long time: inelastic
short time: elastic

31
Q

what is stocks

A

how long will the product remain for (can it be stored)
cannot store: inelastic
can store: elastic

32
Q

what is spare capacity

A

is there spare capital that can be used
low spare capacity: inelastic
high spare capacity: elastic

33
Q

what is substitutability if FoP’s

A

how substitutable they are means it is easier or harder to respond
harder to respond: more inelastic
easier to respond: more elastic

34
Q

what is time

A

is it in the short run or the long run
long run: inelastic
short run: elastic

micro economics (16 decks)

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