Price Elasticity Of Supply

Question 1

What is price elasticity of supply?

Answer 1

Price elasticity of supply is the measure of responsiveness of quantity supplied for a product to a change in price.

Question 2

How do you calculate PES?

Answer 2

PES=
Percentage change in quantity supplied
Percentage change in price

Question 3

What value does price elasticity of supply always have?

Answer 3

Positive-price and quantity move in the same direction-supply curve is always upwards sloping

Question 4

What value of PES is inelastic?

Answer 4

The value is between 0 and 1

Question 5

What value of PES is price elastic?

Answer 5

Greater than 1

Question 6

Draw the diagram of price inelastic of supply

Answer 6

Y axis-price per unit
X axis-Quantity supplied
Steep upwards curve- see diagram

Question 7

Draw the diagram of price inelastic of supply.

Answer 7

Y axis-price per unit
X axis-quantity supplied
an upwards line in the middle (see diagram)

Question 8

What value makes PES unit elastic?

Answer 8

PES=1

Question 9

How to draw the supply curve for unit elastic?

Answer 9

Supply curve is a straight line drawn through the origin
Y axis-price
X axis-quantity supplied

Question 10

What are the factors influencing price elasticity of supply?

Answer 10

-Time-supply is inelastic in the short run as it takes time to respond to a price change. Long run it is more elastic as all resources are variable.

-Stocks-respond quickly to a price change.

-Spare capacity-if a firm has underutilised machinery and underemployed workers or if it’s possible to introduce a new shift in workers -supply is elastic.

-availability and cost of switching resources from one use to another- if labour has specific skills or machinery is highly specific or if it is expensive to reallocate resources form one use to then supply will be relatively inelastic.