Theme 1.2 - Price Elasticity Of Supply

Question 1

What is the PES formula?

Answer 1

% Change in Quantity Supplied / % Change in Price

Question 2

What does PES show?

Answer 2

How responsive supply is to changes in price

Question 3

Why will a PES value always be positive?

Answer 3

Positive relationship between price + supply
Price increase causes supply increase

Question 4

What is PES affected by?

Answer 4

Substitute goods - More = Higher elasticity
Time
Spare Capacity - More = Higher elasticity
Difficulty to hold stock - More = Inelastic
Ease of switching between 4FOP - Easier = Elastic

Question 5

How can time based factors affect PES?

Answer 5

Shorter time period, more switching difficulty - Inelastic
Production time - Longer = Inelastic

Question 6

What are the uses of PES?

Answer 6

Firms can respond quickly to P + D changes
Supply elasticity helps them to do so
Further measures can be taken in order to improve elasticity (E.g., flexible staff, technology)

Question 7

What are the limitations of PES?

Answer 7

Values based off estimates
Difficult to forecast changes in demand
Information may become outdated
Elasticity changes over time
Other factors can cause shift in curve