Ch 6 - Price Elasticity of Supply

Commodity

Commodity

________: tangible good that can be sold /bought /exchanged for products of similar values.

Manufactured good

good that is produced by application of labour/capital/raw materials

Excess supply

excess capacity → rising prices → elastic supply

Changes in marginal cost of production

after expansion of output, if marginal cost increases + marginal return declines → price elasticity of supply → less elastic

Factor mobility

higher mobility, greater capacity of supply

Ability to store output

goods with the ability to be safely stored have relatively elastic supply

Time period

supply is relatively inelastic + short time period

• If price of a commodity rises, elasticity will be more elastic

Unit elastic supply

change in price → proportionate change in quantity supplied

Inelastic

change in price → less than proportionate

Elastic

change in price → greater proportionate

Price elasticity of supply

measure of how much the supply of a product changes when there is a change in price of a product

Factors of Price elasticity

• If the price of a product increases, products will increase quantity supplied to increase profits

• When quantity increases in response to higher prices depending on price elasticity of supply of products

Primary commodities

tend to have a low PES because there cannot be a sudden change in how much is produce

Manufactured goods

tend to have a high PES because it is easier to change production in factories or shops.

Price elasticity of supply

measure of how much the supply of a product changes when there is a change in price of a product

Time period

supply is relatively inelastic + short time period

Excess supply

excess capacity → rising prices → elastic supply

Manufactured good

good that is produced by application of labour/capital/raw materials