Price elasticity of supply and its factors Flashcards
What is the price elasticity of supply
The measure of the responsiveness of changes in quantity supplied to changes in the price
What is the price elasticity of supply
The measure of the responsiveness of changes in quantity supplied to changes in the price
What constitutes an inelastic supply?
When firms have no spare capacity and cannot increase output in response to rising prices
Firm production period is lengthy and cannot respond quickly to changes in price
Low durability of goods: cannot be produced, stored and bought to market when prices rise
When the PES is less than 1 what is it
inelastic
When the PES is greater than 1 what is it
elastic
What constitutes an elastic supply?
Firms have a high degree of spare capacity and can increase output in response to rising prices
The firm has a quick production period and can quickly respond to changes in price
High durability goods can be produced, stored and bought to market when price rises
Spare capacity
if firms have lots of spare capacity, they are able to increase outputs in the short term, thus their PES is elastic
Vise versa
Production period
Firms with quick marginal production periods are able to respond to price changes due to their
What constitutes an inelastic supply?
When firms have no spare capacity and cannot increase output in response to rising prices
Firm production period is lengthy and cannot respond quickly to changes in price
Low durability of goods: cannot be produced, stored and bought to market when prices rise
When the PES is less than 1 what is it
inelastic
When the PES is greater than 1 what is it
elastic
What constitutes an elastic supply?
Firms have a high degree of spare capacity and can increase output in response to rising prices
The firm has a quick production period and can quickly respond to changes in price
High durability goods can be produced, stored and bought to market when price rises
Spare capacity
if firms have lots of spare capacity, they are able to increase outputs in the short term, thus their PES is elastic
Vise versa
Production period
Firms with quick marginal production periods are able to respond to price changes due to their elastic supply
Durability
Goods which are more durable are more elastic as they can be produced, stored and bought to market when prices rise
