Price Elasticity Of Supply

Question 1

PES

Answer 1

Measures the relationship between a change in quantity supplied and a change in price

Question 2

PES formula

Answer 2

Percentage change in quantity supplied / percentage change in price

Question 3

Positive or negative relationship

Answer 3

• Positive relationship = As the price increases, so the quantity supply will increase - profit incentive

Question 4

Price elastic supply

Answer 4

Elasticity of supply (Es) = >1

Question 5

Unit elastic supply

Answer 5

Es = 1

Question 6

Price inelastic supply

Answer 6

0 < Es < 1

Question 7

Perfectly inelastic supply

Answer 7

Es = 0

Question 8

Determinants of PES

Answer 8

-Complexity of supply
-Raw materials
-Inventories available
-Mobility of factors
-Excess capacity
-Span of time

Question 9

Complexity of production

Answer 9

The higher the level of complexity to production the greater the inelasticity (less responsive) as businesses struggle to increase their output.

Question 10

Raw material availability

Answer 10

If the materials aren’t available a producer cannot increase output

Question 11

Inventories

Answer 11

(Stocks) available to meet demand

• A low level of stocks makes supply inelastic in the short term
• When stocks can be released on to the market, supply is elastic

Question 12

Mobility

Answer 12

Determines the factor substitution (labour and machinery) possibilities following a change in demand for the product

Question 13

Excess production capacity

Question 14

Time span

Question 15

Inelastic supply

Answer 15

Firms find it hard to change their production levels in a given time period. A change in price producers a proportionally small change in quantity supplied.

Question 16

Elastic Supply

Answer 16

Producers can increase production without a rise in cost or a time delay. A small change in price produces a proportionally large change in quantity supplied