price elasticity of supply chapter 9

Question 1

price elasticity of supply (PES)

Answer 1

a numerical measure of the responsiveness of the quantity supplied to a change in the price of the product. this is the only change that occurs, ceteris paribus. the supply can be of a business, producer or the market supply of an industry

Question 2

price elastic supply

Answer 2

the quantity supplied responds more than proportionately to a change in its price.if the numerical value of PES is greater than 1, then supply is relatively price elastic.

Question 3

price inelastic supply

Answer 3

the quantity supplied responds less than proportionately to a change in its price. if PES is less than 1, it is relatively price inelastic

Question 4

How is PES calculated

Answer 4

the percentage change in quantity supplied divided by the percentage in price of the product

Question 5

PES and graphs

Answer 5

positive PES means the curve is upward sloping

Question 6

perfectly inelastic

Answer 6

prices or quantities are fixed and are not affected by the other variable. the demand curve is a vertical curve straight line parallel to Y Axis, where the x-axis will be the quantity, and the y-axis will be the price of the product.

Question 7

perfectly elastic

Answer 7

the demand for the product is entirely dependent on the price of the product. perfectly elastic demand curve will be a straight line (horizontal) on a graph, where the x-axis will be the quantity, and the y-axis will be the price of the product.

Question 8

what is meant by perfectly inelastic demand

Answer 8

the supply cannot be increased regardless of change in price

Question 9

what is meant by perfectly elastic demand

Answer 9

a producer may only be willing to supply products for a given price or no less

Question 10

what is the value of PES if demand is perfectly inelastic

Answer 10

PES is zero.

Question 11

what is the value of PES if demand is perfectly elastic

Answer 11

PES is infinity

Question 12

what does a perfectly inelastic graph look like

Answer 12

the demand curve is a vertical curve straight line parallel to Y Axis, where the x-axis will be the quantity, and the y-axis will be the price of the product.

Question 13

what does a perfectly inelastic graph look like

Answer 13

demand curve will be a straight line (horizontal) on a graph, where the x-axis will be the quantity, and the y-axis will be the price of the product

Question 14

factors influencing price elasticity of supply

Answer 14

availability of stocks
time period
productive capacity

Question 15

factors influencing price elasticity of supply: availability of stocks

Answer 15

The ease with which businesses can accumulate or reduce stocks of goods can influence the PES. Stock allows companies to meet variations in demand through changing output rather than changing the price of the product- the more easily manufacturers can do this, the higher the PES. firms that provide services are unable to build up stocks and in most cases the product is ‘perishable’

Question 16

factors influencing price elasticity of supply: time period

Answer 16

The time period or ease with which producers are able to increase production is also relevant. In the short run, businesses and industries with spare productive capacity tend to have a higher PES. However, shortages of critical factor inputs will often lead to an inelastic PES.

Question 17

factors influencing price elasticity of supply: productive capacity

Answer 17

Over time, firms may increase their available productive capacity by investing in more capital equipment, often taking advantage of technological advances. Equally, over time, more businesses can enter or leave an industry and this will increase PES.

Question 18

how can the knowledge of PES help

Answer 18

help to explain the speed and ease with which businesses can respond to changing market conditions.

Question 19

why should a business hold stock

Answer 19

Businesses can hold stock for variations in demand; when there is an unexpected increase in demand, stock can be released quickly and without too many problems.

Question 20

what should a business do if the increase in demand persists

Answer 20

In the longer term, if the increase in demand is expected to persist, the scale of the business can be expanded to increase productive capacity. This takes time depending on the scale of change that is required.