| What is the Price Elasticity of Supply?
-State the Formula | -Simply how Suppliers React as Price Changes - how much is Supplied to the Market
PES= % Change in Quantity Supplied / Percentage Change in Price
PES= % Change Qs / % Change P |
| What is Elastic PES?
-What is Perfectly Elastic Supply | -This is when PES is Greater than 1. This means any Change in Price leads to Greater Change in Quantity Supplied. Higher the PES, Higher the Intensity
-This is when PES is + or - Infinity. Any Fall in Price leads to Quantity Supplied being dropped to 0. Perfectly Horizontal. |
| What is Inelastic PES?
-What is Perfectly Inelastic Supply? | -This is when PES is between 0 and 1 meaning any % Change in Price leads to a Smaller % Change in Quantity Supplied
-This is when PES is - meaning any Change in Price will still lead to the Same Quantity being Supplied. Perfectly Vertical |
| What is Unit Elasticity of Supply | -This is when the PES = 1.
-This means any Price % Change leads to the same % Change in Quantity Supplied. |
| How can Firms make their Supply more Elastic? Why would they? | -Ideas like Flexible Working Patterns, Latest Technology and Spare Production Capacity - allowing Firms to Increase Production without Increasing Costs
-Firms must Respond Quick to Changes in Demand and Price, so Products being Elastic gives them that Speed and Effectiveness |
| Why is it in the Short Run that Price is to be more Price Inelastic? | -Short Run is just when Firms Capacity is Fixed - At Least one Factor of Production is Fixed
-This is usually Capital. Firms can Recruit more Workers and get more Materials, but it needs Time to make Factories and Machines. This makes it more Hard to Increase Production in the Short Term |
| Why is it in the Long Run that Price is more Price Elastic? | -Long Run will have all Factors of Production being Variable, therefore allowing Firms to Increase Production
-This allows Supply being more Elastic as Firms have Longer to React to Changes |
| What Separates the Short and Long Run in different Firms | -This all is to do with Production Times and Levels of Capital Equipment in different Industries
-Firm that makes Sandwiches will need less time to Change Production and make More than a Firm that makes Rockets - More Capital is needed [and therefore more Time] |
| What other Factors can Influence the PES? | -When Unemployment is around, Supply becomes more Elastic as it becomes Easier to Attract Workers
-Perishable Goods [Plants & Flowers] have Inelastic Supply as they can’t be Stored for Long
-High Stock Levels Firms have Price Elastic as Easier to Expand Supply
-Industries with more Mobile Factors of Production can Expand Production easier. Not held back by Time as much |
