Price Elasticity of Supply (PES)

Question 1

Price Elasticity of Supply (PES)

Answer 1

The level of responsiveness of quantity supplied to a change in price

Question 2

Calculating PES

Answer 2

Percentage of change in quantity supplied
/Percentage change in price

Question 3

Elastic Supply (High PES)

Answer 3

-A change in price will lead to a greater change in quantity supplied (ratio of over 1)
-E.g., 10% increase in price = 20% increase in supply
-Relatively flat line

Question 4

Unit Elastic Supply (medium PES)

Answer 4

-Equal to 1
-Change in price is equal to change in quantity supplied

Question 5

Inelastic supply (Low PES)

Answer 5

-Change in price is higher than change in quantity supplied
-Steep line, ratio below 1, still positive though
-E.g., 10% increase in price = 5% increase in supply

Question 6

Factors influencing PES - Spare capacity

Answer 6

-If firms are far from spare capacity and not being efficient, is is easier to reallocate resources (high PES, elastic)
-If firms are operating at productive capacity, they cannot increase production further, harder to reallocate resources (inelastic supply)

Question 7

Factors influencing PED - Production period

Answer 7

-G+S like fruit and veg which take a long time to make are inelastic, whereas g+s which can be produced quickly are elastic, and resources can be reallocated in the short term after a batch is finished.

Question 8

Factors influencing PED - Durability and storability

Answer 8

Goods like wine, which can be stored are elastic, as firms can easily increase supply using what they have stored. Whereas things like services can not be easily increased.