Supply elasticities

Question 1

Price elasticity of supply (PES)

Answer 1

Measures how the quantity supplied of a good responds to a change in price

Question 2

PES elasticities

Answer 2

If answer > 1: Supply is price elastic
If answer is -1: Supply is unit elastic
If answer is <1: Supply is price inelastic

Question 3

Price elastic (>1)

Answer 3

Smaller change in price leads to bigger % change in quantity supplied. The higher the PES, the more elastic the supply is.

Question 4

Elastic supply if:

Answer 4

Spare capacity (not at capacity yet, resources to be used)
Long run (more time to adapt)
If easy to employ more resources to increase output

Question 5

Elastic supply examples

Answer 5

Taxi service- easy to work as a driver, If prices rise uber can offer higher wages to incetivise drivers

Question 6

Inelastic(<1)

Answer 6

Change in price leads to a smaller % change in quantity supplied. Smaller value means more inelastic

Question 7

Inelastic supply if:

Answer 7

Almost at capacity (limited ability to increase supply)
Running out of raw material (become less possible to increase supply)
Short run (more restricted with how to expand production)

Question 8

Inelastic supply examples

Answer 8

Grapes- Harvest is once a year, so in the SR, supply is inelastic
Pinapples- Long time to grow, takes time to expand production