Elasticities of Supply

Question 1

What is price elasticity of supply?

Answer 1

A measure of how responsive supply is to a change in price.

Question 2

What is PES?

Answer 2

Price elasticity of supply.

Question 3

What is the formula for PES?

Answer 3

PES = %change in quantity supplied / %change in price

Question 4

What is perfectly inelastic supply?

Answer 4

When there is no response in quantity supplied to a change in price.

Question 5

What is inelastic supply?

Answer 5

When there is a less than proportional response in quantity supplied to a change in price.

Question 6

What is unitary elastic supply?

Answer 6

When the percentage change in quantity supplied equals the percentage change in price.

Question 7

What is elastic supply?

Answer 7

When there is a more than proportional response in quantity supplied to a change in price.

Question 8

What is perfectly elastic supply?

Answer 8

When producers are willing to supply at any amount at a given price, but nothing will be supplied at any other price.

Question 9

What is the numerical value of perfectly inelastic supply?

Answer 9

Zero (0).

Question 10

What is the numerical value of inelastic supply?

Answer 10

Between 0 and 1 (0<PES<1).

Question 11

What is the numerical value of unitary supply?

Answer 11

One (1).

Question 12

What is the numerical value of elastic supply?

Answer 12

Between one and infinity (1<PES<∞).

Question 13

What is the numerical value of perfectly elastic supply?

Answer 13

Infinity (∞).

Question 14

What if the graphical representation of perfectly inelastic supply?

Answer 14

A vertical line.

Question 15

What if the graphical representation of inelastic supply?

Answer 15

A steep line.

Question 16

What if the graphical representation of unitary elastic supply?

Answer 16

A diagonal line.

Question 17

What if the graphical representation of elastic supply?

Answer 17

A shallow line.

Question 18

What if the graphical representation of perfectly elastic supply?

Answer 18

A horizontal line.

Question 19

What are the three determinants of elasticity of supply?

Answer 19

1) The nature of the good: e.g. perishable goods, such as fruit or flowers, are inelastic as they cannot be stored for very long.
2) Capacity: in the short-term, it may be difficult for a firm to increase supply in response to a rise in price as their warehouse may already be full or the workforce may already be working at full capacity.
3) Stockpiling: Some goods can be easily stockpiled and then sold when prices rise.

Question 20

Why is the supply of most goods inelastic in the short run?

Answer 20

Because, in the short run, at least one factor of production is fixed, meaning suppliers cannot adapt quickly enough to a change in price.

Question 21

Why is the supply of most goods elastic in the long run?

Answer 21

Because, in the long run, all factors of production are variable, so suppliers can adapt to a change in price.