Supply Elasticity Flashcards
1
Q
What does PES measure?
A
How responsive quantity supplied is to a change in price.
2
Q
When is supply inelastic?
A
PES < 1 (small change in quantity supplied for a price change)
3
Q
When is supply elastic?
A
PES > 1 (large change in quantity supplied for a price change)
4
Q
What are the key determinants of PES?
A
Time (more time = more elastic)
Mobility of factors of production
Unused capacity
Ability to store goods
Rate at which costs increase
5
Q
Why do primary commodities tend to have low PES?
A
Take longer to produce
Hard to store
Low factor mobility - hard to acquire new land.
6
Q
Why do manufactured goods tend to have high PES?
A
Quick to scale production
Easier to store
Easier to move resources
