a) price elasticity of supply

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8 Terms

1
New cards

  • define the law of supply

  • when the price of a product increases, the quantity supplied will increase

2
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  • define price elasticity of supply

  • how responsive the change in quantity supplied is to the change in price

3
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  • state the formula for PES

  • PES = (%ΔQS) / (%ΔP)

  • price elasticity of supply = percentage change in quantity supplied / percentage change in price

4
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  • state the type of elasticity if PES = 0

  • define this type of elasticity

  • state what the gradient of this type of elasticity would look like

  • perfectly inelastic

  • the quantity supplied is completely unresponsive to any change in price

  • gradient = 0 (perfectly vertical)

5
New cards

  • state the type of elasticity if 0 < PES < 1

  • define this type of elasticity

  • state what the gradient of this type of elasticity would look like

  • relatively inelastic

  • a large change in the price causes a smaller change in the quantity supplied

  • gradient = constant and positive, gradient > 1

6
New cards

  • state the type of elasticity if PES = 1

  • define this type of elasticity

  • state what the gradient of this type of elasticity would look like

  • unitary elastic

  • a change in the price causes an equal change in the quantity supplied

  • gradient = constant, positive, and 1

7
New cards

  • state the type of elasticity if PES > 1

  • define this type of elasticity

  • state what the gradient of this type of elasticity would look like

  • relatively elastic

  • a large change in the price causes a large change in the quantity supplied

  • gradient = constant and positive, gradient < 1

8
New cards

  • state the type of elasticity if PES = infinite

  • define this type of elasticity

  • state what the gradient of this type of elasticity would look like

  • perfectly elastic

  • the quantity supplied will fall to zero with any change in price

  • gradient = 0 (perfectly horizontal)