Elasticity Of Supply

Question 1

What is price elasticity of supply?

Answer 1

PES - measures the responsiveness of supply to changes in price

Question 2

What is the equation for PES?

Answer 2

%change in Quantity supplied
Divided by
%change of price

Question 3

What does perfectly Inelastic mean?

Answer 3

The PES answer will be 0 —> no response

Question 4

What does Inelastic mean?

Answer 4

When the answer to PES is 0-1 —> small response

Question 5

What does unitary mean?

Answer 5

If the answer to PES is 1 —> if %C in QD is equal to %C in price

Question 6

What does elastic mean?

Answer 6

When the answer to PES Is 1-infinity —> theres a big response in supply

Question 7

What does perfectly elastic mean?

Answer 7

When the answer to PES is infinity —> if producers are prepared to supply any amount at any given price

Question 8

What does it mean when supply is elastic?

Answer 8

Means producers can increase production without cost or delay

Question 9

What does it mean when supply is Inelastic?

Answer 9

Firms find it hard to change their production levels in a given time period

Question 10

What are some factors that may affect the elasticity of supply?

Answer 10

• Time —> short-term: producers may not be able to meet increases in demand. Long term: can increase productive potential to meet increasing demands
• the availability of raw materials
• the availability of stocks or stock piling
• amount of space capacity
• level of unemployment
• the nature of product (e.g. agricultural)