Exam code: 0455 & 0987
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Define price elasticity of supply (PES).
Price elasticity of supply (PES) measures how responsive the quantity supplied is to a change in price.
What does a PES value less than 1 indicate about supply?
A PES value less than 1 indicates that supply is price inelastic, meaning the percentage change in quantity supplied is less than the percentage change in price.
The formula for calculating PES is: PES = % change in quantity supplied / % change in .
The formula for calculating PES is: PES = % change in quantity supplied / % change in price.
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Define price elasticity of supply (PES).
Price elasticity of supply (PES) measures how responsive the quantity supplied is to a change in price.
What does a PES value less than 1 indicate about supply?
A PES value less than 1 indicates that supply is price inelastic, meaning the percentage change in quantity supplied is less than the percentage change in price.
The formula for calculating PES is: PES = % change in quantity supplied / % change in .
The formula for calculating PES is: PES = % change in quantity supplied / % change in price.
How does the mobility of factors of production affect the price elasticity of supply?
If the factors of production are mobile, producers can quickly shift resources between products, making supply more elastic. If resources are specialised or fixed, supply is more inelastic.
True or False?
A producer with spare capacity can respond more elastically to price increases.
True.
Spare capacity allows firms to quickly increase output when prices rise, making supply more elastic.
If raw materials are , supply is more . If materials are scarce, supply is more inelastic.
If raw materials are easily available, supply is more elastic. If materials are scarce, supply is more inelastic.
Define spare capacity.
Spare capacity refers to the unused resources (such as idle machinery or staff) in a firm, allowing it to increase output quickly when needed.
How does the ability to store goods affect the price elasticity of supply?
If goods can be stored easily, producers can release more when prices rise, making supply more elastic. If goods cannot be stored, supply is more inelastic.
What happens to the price elasticity of supply in the long run compared to the short run?
In the long run, supply becomes more elastic, as firms have time to adjust resources and production processes. In the short run, supply is usually more inelastic.
Define unitary elasticity of supply.
Unitary elasticity of supply means that the percentage change in quantity supplied is exactly equal to the percentage change in price.
A supply curve is perfectly inelastic when the PES value is . This means quantity supplied change when price changes.
A supply curve is perfectly inelastic when the PES value is 0. This means quantity supplied does not change when price changes.
True or False?
A PES value of infinity (∞) means supply is perfectly elastic.
True.
A PES value of infinity means that any change in price will cause the quantity supplied to fall to zero, indicating perfectly elastic supply.