2.6 Price Elasticity of Supply (PES) (DP IB Economics: SL): Flashcards
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Define price elasticity of supply (PES).
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Define price elasticity of supply (PES).
Price elasticity of supply (PES) measures how responsive the quantity supplied of a good is to a change in its price.
What is the formula used to calculate PES?
PES is calculated as the percentage change in quantity supplied divided by the percentage change in price.
True or False?
A final PES answer should be expressed as a percentage.
False.
A PES value is a ratio and should not be expressed as a percentage — doing so is a common error that loses marks.
Define the law of supply.
The law of supply states that, ceteris paribus, an increase in price leads producers to increase the quantity supplied, and vice versa.
A PES value of 0 means that supply is perfectly , as quantity supplied is completely unresponsive to a change in price.
A PES value of 0 means that supply is perfectly inelastic, as quantity supplied is completely unresponsive to a change in price.
What name is given to supply when PES lies between 0 and 1?
When PES lies between 0 and 1, supply is described as relatively inelastic, meaning the percentage change in quantity supplied is less than proportional to the percentage change in price.
Define mobility of the factors of production as a determinant of PES.
Mobility of the factors of production refers to how easily producers can switch resources between products; greater mobility makes supply more price elastic.
How does the ability to store goods affect PES?
If products can be easily stored, PES is higher (more elastic) because producers can quickly increase the quantity supplied.
In the run, producers find it harder to respond to a price rise because it takes time to produce more of the product.
In the short run, producers find it harder to respond to a price rise because it takes time to produce more of the product.
What is the effect of spare capacity on the PES of a product?
If a firm has spare capacity, supply is elastic because it can increase production when prices rise; with no spare capacity, supply is inelastic.
Do primary commodities or manufactured products tend to have the higher PES?
Manufactured products tend to have the higher PES, while primary commodities tend to be more price inelastic in supply.
True or False?
Perishable agricultural products have limited storage, which lowers their PES.
True.
Perishable agricultural products have limited storage capabilities, reducing short-term supply responsiveness and giving primary commodities a lower PES.
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