Price Elasticity Of Supply

Question 1

Price elasticity of supply shows

Answer 1

How supply changes with price.

Question 2

Price elasticity of supply PES is a measure of

Answer 2

How the quantity supplied of a good responds to a change in its price.

Question 3

PES formula

Answer 3

Percentage change in quantity supplied

/

Percentage change in price

Question 4

PES can be

Answer 4

Elastic, inelastic or unit elastic

Question 5

Elastic (relatively elastic) supply

Answer 5

PES>1

Question 6

If the supply of a good is elastic is means

Answer 6

A percentage change in price causes a larger percentage change in quantity supplied.

The higher the value of PES, the more elastic supply is for the good.

Question 7

Inelastic (relatively inelastic supply)

Answer 7

PES is between 0 and 1.

Question 8

Inelastic supply means

Answer 8

A percentage change in price will cause a smaller percentage change in quantity supplied.

The smaller the value the more inelastic.

Question 9

Perfectly elastic supply

Answer 9

PES of +- infinity any fall in price means quantity supplied reduced to 0

Question 10

Perfectly inelastic supply

Answer 10

PES = 0

Any change in price will have no effect on the quantity supplied.

Question 11

Unit elasticity of supply

Answer 11

PES=1

Percentage change in quantity supplied is equal to the percentage change in price

Question 12

A high PES is

Answer 12

Important for firms

Question 13

Why is a high PED important for firms??

Answer 13

Because firms aim to respond quickly to changes in price and demand.

So they need to make their supply as elastic (responsive to price changes) as possible.

Question 14

How do you make supply more elastic?

Answer 14

Flexible working patterns

Using latest technology

Having spare production capacity.

Question 15

Supply is price inelastic in the

Answer 15

Short run

Question 16

Why is supply price inelastic in the short run?

Answer 16

Because firms can find it difficult to switch production from one good to another.

Therefore supply is likely to be more price inelastic in the short run than in the long run.

Question 17

Short run

Answer 17

This is the time period when a firms capacity is fixed and at least one factor of production is fixed.

Capital is often the factor of production that is fixed in the short run.

Difficult to increase production in the short run, so supply in short run is inelastic.

Question 18

Long run

Answer 18

In the long run all the factors of production are variable. So in the long run a firm is able to increase its capacity.

Supply is more elastic in the long run because firms have longer to react to changes in price and demand.

Question 19

What other factors affect PES

Answer 19

Unemployment periods supply more elastic

Perishable goods have inelastic supply cant be stored for long

Firms with high stock levels more elastic supply.

Industries with more mobile factors of production more elastic supply.