What is meant by the term price elasticity of supply (PES)?
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What is meant by the term price elasticity of supply (PES)?
Price elasticity of supply reveals how responsive the change in quantity supplied is to a change in price.
State the price elasticity of supply (PES) formula.
Formula:
PES = % change in QS ÷ % change in P
Define the term price inelastic supply.
Price inelastic supply occurs when the percentage change in quantity supplied is less than proportional to the percentage change in price.
What does unitary elasticity of supply mean?
Unitary elasticity of supply means the percentage change in quantity supplied is exactly equal to the percentage change in price.
Define the term price elastic supply.
Price elastic supply is when the percentage change in quantity supplied is more than proportional to the percentage change in price.
State the meaning of perfectly price inelastic supply.
Perfectly price inelastic supply occurs when the quantity supplied is completely unresponsive to a change in price.
What impact do mobile factors of production have on PES?
If producers can quickly switch resources between products (mobile factors of production), then supply will be more price elastic.
What impact does spare capacity have on PES?
If there is spare capacity to increase production when prices rise, then supply will be price elastic. If there is no spare capacity, supply will be price inelastic.
State the formula for calculating a percentage change.
Formula:
% Change = (New Value - Old Value) ÷ Old Value x 100
True or False?
Short term supply is often more price elastic for agricultural products.
False.
In the short run it is harder for producers to respond to price increases, as it takes time to grow crops, so supply is more price inelastic.
What is the impact of the ability to store goods on PES?
If products can be easily stored, then PES will be higher (more elastic) as producers can quickly increase supply.