a) Price elasticity of supply

• define the law of supply

• price of a good or service increases → quantity supplied increases

• define price elasticity of supply

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

• state the formula for PES

• PES = (%ΔQS) / (%ΔP)

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

• 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

• change in price → no change in quantity supplied

• gradient = 0 (vertical)

• 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

• change in price → smaller change in quantity supplied

• gradient > 1

• 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

• change in price → equal change in quantity supplied

• gradient = 1

• 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

• change in price → larger change in the quantity supplied

• 0 < gradient < 1

• 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

• change in price → zero quantity supplied

• gradient = 0 (horizontal)

• state the determinants of PES

• state how a high value of these determinants effects PES

• mobility of the factors of production

  • high mobility = high PES

• availability of raw materials

  • high availability = high PES

• ability to store goods

  • high ability = high PES

• spare capacity

  • high capacity = high PES

• time period

  • longer time period = high PES