PES

Question 1

Definition of PES

Answer 1

Responsiveness of quantity supplied after a change in price

Question 2

PES formula

Answer 2

% change in qty. supplied / % change in price

Question 3

Perfectly Inelastic supply

Answer 3

PES = 0
Change in price causes no change in qty. supplied

Question 4

Inelastic supply

Answer 4

PES > 0 but < 1
A change in price will cause a less than proportionate change in quantity supplied

Question 5

Elastic supply

Answer 5

PES > 1
A change in price will cause a more than proportionate change in quantity supplied

Question 6

Unitary elastic supply

Answer 6

PES = 1

Question 7

Perfectly elastic supply

Answer 7

PES = ∞
Change in price causes NO supply at all

Question 8

Factors that influence PES? (6)

Answer 8

1. Availability of FOP
2. Time period necessary to produce good
3. Time period after price change
4. Possibility to store the good
5. The production cost
6. The availability of free production capacity