price of elasticty of supply Flashcards
What is Price Elasticity of Supply (PES)?
It is the responsiveness of the quantity supplied of a good or service by producers to a change in the good or service’s price.
What characterizes elastic supply?
Elastic supply means producers can increase output without a rise in cost or time delay when prices increase.
What information does PES provide about producers?
t indicates how quickly producers can respond to a change in price and whether that change will have a small or large effect on quantity supplied.
What does it mean if PES = 1?
upply is unitary elastic, meaning price and quantity change in the exact same proportion.
What is the formula for Price Elasticity of Supply (PES)?
PES = % Change in Quantity Supplied / % Change in Price
What characterizes inelastic supply?
nelastic supply means producers find it difficult to change production within a given time period when prices change.
Calculate the PES: The price of wheat rises by 15%, causing quantity supplied to expand by 5%.
PES = (5% / 15%) = 0.33, indicating inelastic supply.
What does it mean if PES > 1?
Supply is price elastic, meaning producers are sensitive to a change in price.
What factors affect Price Elasticity of Supply?
Time, the nature of the industry, and the ability to store inventories.
