Elastic supply
Producers can increase output without a rise in cost or a time delay
Inelastic supply
Producers find it hard to change production following a change in price in a given period of time
PES formula
Percentage change in quantity demanded / Percentage change in price
Cross elasticity of demand
Measures the responsiveness of demand for good X following a change in the price if a related good Y
Close substitiues
Small rise in the price of good X causes a large rise in the demand for good Y
Weak substitutes
A large rise in the price for good X cause a small rise in the demand for good Y
Close complements
A small rise in the price of good X causes a large rise in the demand for good Y
Weak complements
A large drop in the price of good X causes a small rise in the demand for good Y
Unrelated products
Products where a change in price of one product does not affect the demand for the other product
Supply
The quantity of a good or service that a producer is willing and able to supply in a given period of time
The basic law of supply
As the price of a product rises, do businesses expand to supply that product
Profit motive
When producers expand supply because a product becomes more profitable
Demand
The quantity if a product sought by consumers in a given time period
The price mechanism
Describes the means by which decisions taken by consumers and businesses interact to determine the allocation of scarce resources
Price elasticity of supply
Measures the relationship between change in quantity supplied following a change in price
Elastic supply
Producers can increase output without a rise in cost or a time delay
Inelastic supply
Producers find it hard to change levels of production in a given time period
PES (Formula)
Percentage change in quantity demanded/percentage change in price
PES > 1
Supply is price elastic
PES
Supply is price elastic
PES = 0
Supply is perfectly inelastic
PES = infinity
Supply is perfectly elastic
Spare production capacity
When all of resources within production are not fully utilised
Occupational mobility (production)
Refers to the ease with which producers can switch to producing another good