chapter 11 price elasticity of supply (PES)
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9 Terms
what is PES
measures how responsive the quantity supplied of a good/service is when there is a change in price
PES formula
% change in quantity supplied/ % change in price
why is PES usually positive
price and quantity supplied usually have a positive relationship, when price rises firms are willing to supply more
how does spare capacity affect PES
more spare capacity, firms can increase output more quickly, more elastic supply
how do stocks affect PES
large stocks allow firms to increase supply quickly, more elastic supply
why is supply more elastic in the long run
firms have more time to increase capacity, employ workers and obtain factors of production
why is PES important to firms
helps predict how easily they can respond to price changes and decide production levels
why is PES important to the government
helps government predict how producers will respond to changes in prices, taxes and subsidies