Price Elasticity of Supply (PES)

Question 1

What is PES?

Answer 1

measures the responsiveness of quantity supplied to changes in the price

Question 2

What is the formula for PES?

Answer 2

% change in QS / % change in P

Question 3

What does it mean if supply is elastic?

Answer 3

an increase in price will lead to a greater than proportional increase in quantity supplied

Question 4

What does it mean if supply is inelastic?

Answer 4

an increase in price will lead to a less than proportional increase in quantity supplied

Question 5

Why is PES always positive?

Answer 5

due to the Law of Supply which states that there is a direct relationship between price and quantity supplied

Question 6

What does PETS stand for and what do these factors affect?

Answer 6

Production lag (raw materials need to be found, extracted, processed), Ease of switching between alternative production (& ability to alter production methods), Time (short-run: supply is price inelastic, long-run: supply is price elastic as factors of production are variable so it’s easier to increase/decrease production), Stock/stock-piling and spare capacity availability. these factors affect PES