Supply and PES

Question 1

Importance of PES for consumers

Answer 1

If the product is inelastic supply, they are likely to face high prices in order to obtain more. If product is very inelastic, they might not be able to get it at all if the quantity supplied is fixed which may result in ticket touts which can be very expensive

If the product has elastic supply, it will be easy to purchase more, and will lilely have a low price

Question 2

Importance of PES for producers

Answer 2

If it is very inelastic supply, it could result in ticket touts occurring leading to a loss of revenue.
Firms will prefer to have an elastic supply as they will be able to respond quicker to price changes, maximising revenue. Flexibility in offering consumers.

Question 3

Explain signalling

Answer 3

Prices signal where resources are needed, if the price of a specific good or service is higher, more resources will be allocated to that area

Question 4

Explain “transmission of preference”

Answer 4

Higher prices encourage owners of resources to supply more to specific markets. So they get more demand for their resources too

Question 5

Explain “rationing”

Answer 5

Where resources are scarce, price rises so that demand equals supply