supply and elasticities Flashcards
1
Q
what causes movement along supply curve
A
change in price
2
Q
why does supply increase for increase in price
A
higher price = higher profit sop incentive to profit maximise
3
Q
non price determinants of supply
A
changes to cost of production discovery of new raw materials improvements in technology changes to productivity indirect taxes and subsidies changes to prices of other goods (firms may switch the product that they produce and thus decreasing supply of the original good) number of suppliers
4
Q
what is joint supply
A
the production of one good involves the production of another eg beef and leather
5
Q
PES formula
A
percentage change in quantity supplied/percentage change in price
6
Q
inelastic PES
A
PES between 0 and 1
7
Q
elastic supply
A
PES greater than 1
8
Q
perfectly elastic supply
A
+/- infinity
9
Q
perfectly inelastic supply
A
PES = 0
10
Q
why is a high PES important for firms
A
they need to be able to respond quickly to changes in prices - must be as elastic as possible
11
Q
PES determinants
A
P - Production lags S - spare capacity S - Stock S - substitutability T - time period
12
Q
PES short run vs long run
A
short run - inelastic
long run - elastic
