Price Elasticity of Supply

Question 1

What does the PES (price elasticity of supply measure)

Answer 1

the responsiveness of supply to a change in price

Question 2

What is the calculation for PES?

Answer 2

PES = % change is price / % change in quantity supplied

Question 3

What does inelastic supply refer to?

Answer 3

when a change in price leads to a smaller % change in quantity supplied

Question 4

If supply is inelastic is the PES greater or less than one?

Answer 4

less than

Question 5

Give 5 reasons supply could be inelastic

Answer 5

1. firms could be operating at full capacity
2. firms have no extra goods to sell - low stocks
3. if capital is fixed in the short term - cannot produce more with the resources they have
4. difficult to employ factors of production
   5.agricultural factors are harder to obtain in the short run

Question 6

What does elastic supply refer to?

Answer 6

when a change in price leads to a larger % change in quantity supplied

Question 7

if supply is elastic is the PES greater or less than one?

Answer 7

greater than

Question 8

What are 5 characteristics of elastic supply?

Answer 8

1. spare capacity in the factory
2. available stocks - extra goods available to sell
3. capital can bought in the long run
4. if it’s easy to employ factors of production
5. if the market is competitive