Price elasticity of Supply (PES)

Question 1

What’s a “Fast-moving consumer good (FMCG)”?

Answer 1

goods, especially food, that sell very quickly and in large amounts

Question 2

What is ‘Price elasticity of supply’?

Answer 2

It’s the responsiveness of supply to a change in price

Question 3

What is ‘inelastic supply’?

Answer 3

It’s the change in price resulting in a proportionately smaller change in the quantity supplied (alternative term: price inelastic)

Question 4

What’s ‘elastic supply’?

Answer 4

It’s the change in price resulting in a proportionately greater change in the quantity supplied (alternative term: price elastic)

Question 5

What does it mean to be ‘perfectly elastic’?

Answer 5

It’s (supply) where PES = infinity. (Producers will supply an infinite amount at the given price)

Question 6

What are ‘Raw Materials’?

Answer 6

They are substances used to make a product

Question 7

Who are the ‘wholesalers’?

Answer 7

a people or companies that sells goods in large quantities to businesses, rather than to the general public

Question 8

What is ‘Unitary Elasticity’?

Answer 8

It’s (with regard to supply) where PES = 1 (a change in price will be matched by an identical change in the quantity supplied)

Question 9

What does it mean to be ‘perfectly inelastic’?

Answer 9

It’s (supply) where PES = 0 ( the quantity suppled is fixed and cannot be adjusted whatever the price)

Question 10

What does it mean if PES is less than 1?

Answer 10

Supply is inelastic.

Question 11

What is the formula for calculating Price Elasticity of Supply (PES)?

Answer 11

PES = percentage change in quantity supplied / percentage change in price.

Question 12

What is the difference between perfectly elastic and perfectly inelastic supply?

Answer 12

• Perfectly elastic supply (PES = infinity) means producers will supply an infinite amount at a given price.
• Perfectly inelastic supply (PES = 0) means the quantity supplied is fixed and cannot be adjusted regardless of price.

Question 13

How does the availability of stocks affect PES?

Answer 13

• Producers that can hold stocks can respond quickly to price changes, making supply more elastic.
• However, where it is impossible or expensive to hold stocks, supply will be inelastic

Question 14

How does time affect PES?

Answer 14

• The more time producers have to react to price changes, the more elastic supply will be.
• Where it is not possible to increase supply quickly due to production limitations, supply will be inelastic

Question 15

What factors influence PES?

Answer 15

Factors include:

• availability of production
• spare capacity
• availability of stocks
• time

Question 16

How does the slope of the supply curve relate to PES?

Answer 16

A steep slope indicates an inelastic supply, while a flat slope indicates an elastic supply

Question 17

Explain why the price elasticity of supply (PES) for agricultural goods is often inelastic. (4 marks)

Answer 17

• Agricultural goods often have an inelastic supply because farmers cannot increase supply quickly.
• It takes time to grow crops or raise livestock, so supply cannot easily respond to changes in price.