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Flashcards in PES Deck (18)
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1

Price Elasticity of Supply (PES)

measure of the percentage change in quantity supplied from a percentage change in price

2

Elastic PES

the percentage change in quantity supplied is greater than the percentage change in price. PES > 1

3

Any PES curve coming out of the y-axis has...

Elastic PES

4

Inelastic PES

the percentage change in quantity supplied is less than the percentage change in price. PES < 1

5

Any PES curve coming out of the x-axis has...

Inelastic PES

6

Unitary PES

the percentage change in quantity supplied is equal to the percentage change in price. PES = 1

7

Any PES curve coming out of the origin has...

Unitary PES

8

Perfectly Elastic PES

any quantity can be supplied at the same price. PES = infinity. (Line parallel to x-axis)

9

Perfectly Inelastic PES

supply is fixed and can not respond to price changes. PES = 0. (Line parallel to y-axis)

10

Determinents of PES

1. Availability of FOPS
2. Mobility of FOPS
3. Spare production capacity
4. Level of stocks (inventory)
5. Durability of products
6. Length of production process
7. Time

11

How does Availability of FOPS affect PES

if FOPs (land, labour, capital) are available, firms can quickly and easily use more FOPs in production. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

12

How does Mobility of FOPS affect PES

if FOPs are mobile (e.g. labour can do different tasks) they can be moved to different areas of production when needed. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

13

How does Spare production capacity affect PES

if firms have lots of spare production capacity they can easily increase production levels. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

14

How does Level of stocks (inventory) affect PES

Firms with lots of stock can sell finished products when prices change. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

15

How does durability of products affect PES

Durable products can be stored and sold when prices change. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

16

How does Length of production process affect PES

Products with a short production process are quicker to make. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

17

How does Time affect PES

In the long run, firms are able to make changes to their FOPs, production process and stock levels. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

18

Which Type of PES is preferred?

Elastic PES is preferable for firms so they can react quickly to changes in prices.