lesson 12

Question 1

if there is elastic supply can firms supply more or less?

Answer 1

more supply

Question 2

if there is inelastic supply can firms supply more or less?

Answer 2

less supply

Question 3

what does PES measure?

Answer 3

measures the extent to which firms are prepared to increase output in response to a change in price

Question 4

elastic supply with PES

Answer 4

• small rise in price causes a greater percentage rise in supply
• firms are quick to increase supply if prices are rising
• firms can easily increase supply if prices are rising
• likely to have elastic supply if firms can easily increase production as soon as they see see prices rising

Question 5

inelastic supply with PES

Answer 5

• a rise in price causes a smaller percentage rise in supply
• firms are slow to increase supply if prices are rising
• we are likely to have inelastic supply if firms cannot easily increase production when they see prices rising

Question 6

what determines the elasticity of supply?

Answer 6

length of production period

existence of spare capacity

ease of factor substitution

time

Question 7

one reason why is cutting production difficult?

Answer 7

firing staff is complicated

Question 8

what determines the elasticity of supply?
ease of factor substitution (reason)

Answer 8

the ability to switch to producing something else
include all four factors of production

Question 9

what is the significance of PES?

Answer 9

• firms have a profit incentive to make their supply as elastic as possible
• if prices are rising firms want to be able to supply more so they can make more profit

Question 10

to increase the elasticity of supply what do firms need to do?

Answer 10

firms need to keep their resources flexible and keep their stock levels as appropriate as possible

Question 11

how do you calculate profit?

Answer 11

profit = total revenue - total cost

Question 12

investing in what counts as long run?

Answer 12

investing in capacity

Question 13

easy factor of substitution

Answer 13

how easily they can switch their factor goods over to another

Question 14

explain the difference between elastic and inelastic supply

Answer 14

elastic supply is sensitive as a small rise in price causes a greater percentage rise in supply. this is likely to be seen if firms can easily increase production. inelastic supply is insensitive and a small rise in price causes a smaller percentage rise in supply; production cannot be easily increased

Question 15

explain why some goods might have inelastic supply

Answer 15

firms cant respond to rise in price with a big rise in supply

no spare capacity

1. cant crank or boost production
2. difficult to transfer resources
3. no stock

Question 16

explain why some goods might have elastic supply

Answer 16

firms can respond to rise in price with a big rise in supply

has spare capacity

1. lots of stock
2. easy to substitute factors

Question 17

one reason that occupational mobility of labour might increase

Answer 17

investment in training

Question 18

what effect will rising demand have on competitive markets?

Answer 18

an increase in the number of suppliers

Question 19

law of demand

Answer 19

demand must rise as prices fall

Question 20

what effect will a rise in the price of a product have on the supply curve?

Answer 20

an extension in supply