chapter 12 - pes

Question 1

definition of:

price elasticity of supply

Answer 1

measures the degree of responsiveness of quantity supplied of a product following a change in its price

Question 2

calculating pes

Answer 2

percentage change in quantity supplied/ percentage change in pricing

Question 3

price elastic supply

Answer 3

quantity supplied is responsive to changes in price

• pes greater than 1
• plenty of spare capacity

Question 4

price inelastic supply

Answer 4

quantity supplied not responsive to changes in prices

• pes less than 1
• firms little spare capacity

Question 5

perfectly price elastic supply

Answer 5

quantity supplied can change without any corresponding change in price, have spare capacity so can raise output at current price level

Question 6

perfectly price inelastic supply

Answer 6

a change in price has no impact on quantity supplied, no spare capacity to raise output

Question 7

unitary price elasticity supply

Answer 7

change in price is proportional to change in quantity supplied

Question 8

determinants of pes

Answer 8

• degree of space capacity
• level of stocks
• number of producers
• ease and costs of substitution
• time period

Question 9

significance of pes for decision makers

Answer 9

be more responsive to changes in price, helps to be more competitive

Question 10

how to be more responsive to changes in market price?

Answer 10

• create spare capacity
• train employees
• adopting latest technology
• keep large volumes of sticks