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Description
Flashcards by Jasmine Wells, updated more than 1 year ago
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Created by Jasmine Wells
over 8 years ago
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| Question | Answer |
| What is Price elasticity of supply? | It is a measure of the responsiveness of quantity of a good supplied to a change in price. |
| What is the formula for PES?/ | PES= percentage change in quantity supplied/percentage change in price. |
| What does it mean when PES <1? | This means that supply is price inelastic. - the percentage change in quantity supplied is smaller than the percentage change in price - Quantity supplied is relatively unresponsive to changes in price |
| What happens when PES>1? | Supply is price elastic when PES>1. - percentage change in quantity supplied is greater than the percentage change in price. - Quantity supplied is relatively responsive to changes in price. |
| What are the three special cases of supply? | - PES=1 (Unit elastic of supply) Percentage change in quantity supplied=percentage change in price - PES =0 (Perfectly inelastic supply) The percentage change in quantity supplied is zero. - PES = infinity (Perfectly elastic supply) A very small change in price can cause a very large respons e to the quantity supplied. |
| What are the 4 determinants of price elasticity of supply? | - Length of time - Mobility of factors of production -Spare capacity of firms - Ability to store stocks |
| Describe llength of time relative to PES | Over a short period of time, firms may be unable to increase or decrease any of its input to change quantity supplied or produced. E.g. trees take time to grow - The larger the amount of time for a firm to adjust, the greater the PES |
| Describe mobility of factors of production relative to PES | - The ease and speed at which firms can shift resources and production between different products. - The more easily= greater PES |
| Describe spare capacity of firms relative to PES | Unused capital e.g. factories - May be easier for firms to respond to price increase by producing more output as opposed to firms with no spare capacity. - Greater space capacity = >PES |
| Describe ability to store stocks relative to PES | - Unsold output - Firms that are able to store output tend to have higher PES |
| Why do primary commodities tend to have lower PES than manufactured goods? | Because of the time it takes to respond to price changes through increasing/decreasing their quantity supplied. |
| What are 2 consequences of a low PES for primary commodities? | - Inelastic supply of a product leads to price and income instability for primary producers - THe fluctuation of prices mean unstable revenue for producers of primary products. |
| Over the long run what occurs to the PES of agricultural products? | Over the long run, PES of agricultural products is larger due to the amount of time that they were able to adjust to price changes. |
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