Price Elasticity of Supply Flashcards
1
Q
Price Elasticity of Supply Definition
A
The responsiveness of supply to a change in price.
2
Q
PES Coefficients
A
0 = Perfectly Inelastic
0 - 1 = Inelastic
1 = Unitary/Constant Elasticity
1 - ∞ = Elastic
∞ = Perfectly Elastic
3
Q
Determinants of Elasticity of Supply
A
- Price, increases in price act as an incentive for firms to increase supply.
- Factor Substitution Possibilities (availability of substitutes), when factor substitution is possible and can be achieved at low cost, supply will be elastic.
- Spare Production Capacity available, when there is spare capacity, businesses can expand output easily.
- Stocks available to meet demand, low level of stocks makes supply inelastic.
- Time Frame allowed, momentary period = fixed supply, short run = inelastic, long run = elastic.
- Artificial limits on supply, e.g. impacts of patents on limiting firms’ production capability.
