Unit 3.2 PES Flashcards
How to calculate PES
Percentage change in quantity supplied over percentage change in price
What is PES>1 mean and curve type
Supply is elastic
Curve is more horizontal
Means when price changes, change in quantity supplied will proportionally be greater than the change in price
PES<1 mean and curve type
Supply is price inelastic
Curve is more vertical
Means when price changes, quantity supplied will change but proportionally less to the change in price
PES 0 and curve type
Supply is perfectly price inelastic
Curve is vertical
Regardles of how much price changes the quantity supplied will never change
PES infinity and curve type
Supply is perfectly elastic
Curve is horizontal
PES 1 and curve type
Supply is unit price elastic
Acronym for PES determinants
P-roduction lag (A long production lag, where producers take significant time to adjust their quantity supplied, tends to result in a more inelastic supply. This is because the quantity supplied does not easily respond to changes in price due to the time-consuming production processes or capacity limitations. As a result, the supply cannot quickly adapt to fluctuations in demand)
S-stocks (the larger the amount of stock the more price elastic as more easy for supplier to respond to an increase in price or increase in demand, the lower the stock the more inelastic)
S-pare capacity (the more spare capacity the more price elastic where price increases or demand increases where production needs to go up, you can utilize spare capacity)
S-ubstitutability of factors of production ( the more substitutable the factors of production are,the more price elastic supply will be as the easierit is to respond by increasing production whter price goes up or when demand increases.) and vice versa
T-ime (short term time is price inelastic as its hard to switch production in a short run, cant vary the factors of production)
