T3 - PES Flashcards
What is the price elasticity of supply
Responsiveness to the level of supply to price changes
What can PES be used to explain
How much production changes in respect to price
How do you calculate PES
% change in supply/ %change in price
What would the PES of elastic supply be
Greater than 1
What would the PES be of inelastic supply
Less than 1
What is elastic supply
Where the change in demand can be met without large price changes
What is inelastic supply
Where supply is relatively unresposive to demand changes
Factors influencing PES
Spare capacity
Stock of finished products and componenets
Ease of switching production
Supply of raw materials
Time
Number of firms in the market
How does s[are capacity influence PES
If there is alot firms can supply more without a rise in costs, therefore supply will be elastic
How does stocks of finished products and compoenents affect PES
If stocks are at a high level then firms will be able to respond to a change in demand, without rasing prices etc
How does ease of switching producting affect PES
If firms can easily switch to making another good supply would be elastic
How does supply of raw materials affect PES
If the are readily available supply will be elastic
How does time affect PES
The more time , the easier it is to alter production making supply elastic
How does number of firms in markets affect PES
If there are no limits or barriers to entry supply becomes elastic
What is perfectly elastic supply
Increases in demand can be met without changes in price
