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How does PES apply to a firm with high fixed costs?
A firm with high fixed costs typically has a relatively inelastic supply because it can't quickly ramp up production in response to price changes.
How does PES apply to a commodity like wheat?
Wheat typically has a perfectly elastic supply because there are many suppliers, and quantity supplied becomes infinite with even a tiny price increase.
A company has a monopoly on a unique product. What type of PES does it likely have?
Perfectly inelastic supply. They'll supply the same amount regardless of price.
How does PES apply to a firm that can quickly increase production with low costs?
Relatively elastic supply. Quantity supplied changes a lot with price changes.
If the price of apples increases, and apple farmers significantly increase their output, what does this suggest about the PES of apples?
It suggests that the PES of apples is relatively elastic, as the quantity supplied is responsive to price changes.
A rare painting is put up for auction. How does PES apply?
The painting has a perfectly inelastic supply because only one exists, and the quantity supplied cannot change regardless of the price.
How does PES relate to the availability of resources?
If resources are readily available, supply tends to be more elastic. If resources are scarce, supply tends to be more inelastic.
How does PES relate to the time it takes to produce a good?
Goods that take a long time to produce tend to have more inelastic supply in the short run.
How does PES relate to storage capacity?
If a good can be easily stored, supply tends to be more elastic, as producers can adjust the quantity supplied more easily.
How does PES apply to a concert venue with fixed seating?
The supply of seats is perfectly inelastic in the short run because the number of seats cannot change regardless of the price.
What is Price Elasticity of Supply (PES)?
Measures how sensitive the quantity supplied is to changes in price.
Define perfectly inelastic supply.
Es = 0; Quantity supplied doesn't change, no matter the price.
Define relatively inelastic supply.
0 < Es < 1; Quantity supplied changes a little with price changes.
Define unit elastic supply.
Es = 1; Percentage change in quantity supplied equals the percentage change in price.
Define relatively elastic supply.
Es > 1; Quantity supplied changes a lot with price changes.
Define perfectly elastic supply.
Es = ∞; Quantity supplied becomes infinite with even a tiny price increase.
What does a high PES indicate?
Producers respond a lot to price changes (supply is elastic).
What does a low PES indicate?
Producers don't change their output much when prices change (supply is inelastic).
What is the formula for calculating PES?
Es = (%ΔQs) / (%ΔP)
What is quantity supplied?
The amount of a good or service that producers are willing and able to offer for sale at a given price during a specific time period.
What does a vertical supply curve indicate?
Perfectly inelastic supply (Es = 0).
What does a horizontal supply curve indicate?
Perfectly elastic supply (Es = ∞).
If a supply curve is steep, is supply elastic or inelastic?
Inelastic.
If a supply curve is relatively flat, is supply elastic or inelastic?
Elastic.
How does a change in technology shift the supply curve, and what does it imply for PES?
A new technology shifts the supply curve to the right, increasing the quantity supplied at every price. This can make supply more elastic.
How does an increase in input costs affect the supply curve, and what does it imply for PES?
An increase in input costs shifts the supply curve to the left, decreasing the quantity supplied at every price. This can make supply more inelastic.
What does it mean if the supply curve is a straight line passing through the origin?
Unit elastic supply (Es = 1).
How can you visually estimate PES from a supply curve?
Compare the percentage change in quantity supplied to the percentage change in price. A larger quantity change for a given price change indicates higher elasticity.
How does the slope of the supply curve relate to PES?
A steeper slope indicates lower PES (more inelastic), and a flatter slope indicates higher PES (more elastic).
What happens to the equilibrium price and quantity when a supply curve shifts rightward and demand is inelastic?
Price decreases significantly, and quantity increases slightly.