Price Elasticity Of Supply Flashcards
What is price elasticity of supply?
The responsiveness of quantity supplied over price changes
Price Elasticity Of Supply formula
Percentage changes in quantity supplied by percentage changes in price
How many types of PES are there?
5 (Elastic, Inelastic, Unitary Elasticity, Perfectly elastic, Perfectly inelastic)
Explain about PES being elastic
Where PES > 1, % changes in quantity supplied is larger than % changes in price, curve shallow slope upwards from left to right where the gap between two supply points is larger than the gap with price points
Explain about PES being inelastic
Where PES < 1, % changes in quantity supplied is lower than % changes in price, curve steep slope upwards from left to right where the gap between two price points is larger than the gap with quantity supplied points
Explain about PES being unitary elastic
Where PES = 1, % changes in quantity supplied is equal to % changes in price, curve is normal slope upwards from left to right where the gap between quantity supplied and price points are the same
Explain about PES being perfectly elastic
Where PES = infinity, if price changes then producer will supply infinite amount at given price, curve is horizontal where there’s only one price
Explain about PES being perfectly inelastic
Where PES = 0, the quantity supplied doesn’t change along with the price changes, curve vertical where there’s given price points (mostly agricultural goods)
How does factors of prodcution affect PES?
If producers got easy access to factors of production then it boost the production level => elastic
If producers have difficulties getting access to factors of production then it slow down the production level => inelastic
(works same with labour)
How does availbality of stocks affect PES?
If the stock can be stored and respond quickly to price => elastic
If the stock can’t be stored and respond slowly to price => inelastic (Porishable goods and luxury goods)
How does spare capacity affect PES?
If more spare capacity available, it boosts the production => elastic
If little/no spare capacity available, doesn’t have place to store products, delays production => inelastic
How does time affect PES?
If the supply can be increased rapidly during a period of time => elastic
If the supply can’t be increased rapidly during a period of time => inelastic
Describe the universal value of PES
It’s positive (+)
