Price Elasticity of Supply (PES)

Question 1

PES definition

Answer 1

measures the responsiveness of quantity supplied given a change in price

Question 2

PES equation

Answer 2

PES = percentage change quantity supplied / percentage change price

Question 3

What will the value of PES always be

Answer 3

Positive
Due to the Law of Supply
If price increases, quantity supplied increases and positive / positive = positive
If price decreases, quantity supplied decreases and negative / negative = positive

Question 4

PES greater than 1

Answer 4

supply is price elastic

Question 5

PES equals 1

Answer 5

supply is unit price elastic

Question 6

PES value between 0 and 1

Answer 6

supply is price inelastic

Question 7

Factors that influence PES

Answer 7

P - production lag
S - stocks
S - spare capacity
S - substitutability of FoPs
T - time

Question 8

Goods with inelastic supply
e.g. Agricultural Goods

Answer 8

High production lag
Low stocks
Low spare capacity
Low substitutability of FoPs
Long time

Question 9

Goods with elastic supply
e.g. Soft Drinks

Answer 9

Short production lag
High stocks
High spare capacity
High substitability of FoPs
Short time