Price Elasticity of Supply Flashcards
what is supply elasticity
the responsiveness of supply to a change in price
what is inelastic supply
change in price results in a proportionally smaller change in supply
what is elastic supply
change in price results in a proprotionally larger change in supply
what is formula for supply elasticity
PES = percentage change in supply / percentage change in price
what is infinite pes
perfectly elastic suppliers can supply any amount at a given price
what is 0 PES
perfectly inelastic, price change wont affect the supply
what is 1 PES
unitary elasticity percentange change in price is proportional to the perc chanfge in supply
what are wholesalers
person or company that sells goods in large quantities to businesses rather than general public
What are the factors effect PES, and the pneumonic (4)
PSST
factors of Production
availability of Stocks
Spare Capacity
Time
how do factors of production effect the PES
if materials labour and energy are efficient that supply can be elastic and function efficienntly, if there are adequete materials and energy then if price rises there will be no reason that supply does not rise aswell, also if labour is effecient and mobile then supply can increase, if labour is mobile and can switch skills then it will be elastic, if specialist are need then it may take time to get them, so supply will be inelastic
how does availability of stocks affect PES
if stoccks can be held the they can change to price changes quickly, however perishable goods such as fruit can not be stored for long making supply inelastic
how does spare capacity effect PES
if companies are running at below full capacity the they can increase production and supply quickly, however companies running at full capacity cannot increase supply at short notice, big firms however can by creating more factories, it depends on the company
how does time effect PES
if companies are given enough time they can respond to price changes efficiently, supply will be more elastic, however depending on the company and good, if not enough time then it will be inelastic, such as agricultural goods, supply cannot increase straight away if will take almost a year
