Theme 1.2 - Price Elasticity Of Supply Flashcards

1
Q

What is the PES formula?

A

% Change in Quantity Supplied / % Change in Price

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2
Q

What does PES show?

A

How responsive supply is to changes in price

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3
Q

Why will a PES value always be positive?

A

Positive relationship between price + supply
Price increase causes supply increase

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4
Q

What is PES affected by?

A

Substitute goods - More = Higher elasticity
Time
Spare Capacity - More = Higher elasticity
Difficulty to hold stock - More = Inelastic
Ease of switching between 4FOP - Easier = Elastic

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5
Q

How can time based factors affect PES?

A

Shorter time period, more switching difficulty - Inelastic
Production time - Longer = Inelastic

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6
Q

What are the uses of PES?

A

Firms can respond quickly to P + D changes
Supply elasticity helps them to do so
Further measures can be taken in order to improve elasticity (E.g., flexible staff, technology)

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7
Q

What are the limitations of PES?

A

Values based off estimates
Difficult to forecast changes in demand
Information may become outdated
Elasticity changes over time
Other factors can cause shift in curve

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