Chapter 3.3 Flashcards
Price elasticity of supply
A measure of the responsiveness of the quantity of a good supplied to changes in its price
Price elasticity of supply formula
Percentage change in quantity of good supplied over percentage change in price
When is supply price inelastic?
When PES < 1
When is supply price elastic?
When PES > 1
When is supply unit elastic?
When PES = 1
When is supply perfectly inelastic?
When PES = 0
How can you tell there is unitary supply from a graph?
Supply curve passes through the origin
When is supply perfectly elastic?
When PES = infinity
Determinants of price elasticity of supply
Length of time
Mobility of factors of production
Spare capacity of firms
Ability to store stocks
Rate at which costs increase
Why do primary commodities have a lower PES than manufactured products?
The time needed for quantity supplied is usually much longer
Why do primary commodities have a higher PES in the long-term?
More time is given to make the adjustments and produce more
