PES Price Elasticity of Supply

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  • Created by: Simone
  • Created on: 05-01-14 14:19
Define PES
measures the responsiveness of quantity supplied to changes in price
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Is PES positive or negative?
Always positive
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PES is inelastic.. values?
0 to 1
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PES is elastic.. values?
greater than 1
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What is meant by supply elastic
producers can increase output without a rise in cost
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What is meant by supply inelastic
firms find it hard to change production in a given time period
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Unitary supply =
= 1
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Business Relevance?
stock decisions and impact on TR
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Explain stock decisions?
if a price rise is expected in the short term, firms should hold stock
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Explain impact on TR?
firms will try to make their supply as elastic as possible to cash in on price rises and sell more
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Determinants of PES?
1. Spare capacity 2. time 3.availability of substitutes
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Explain spare capacity
if there is plenty of spare capacity the firm should be able to increase output without a rise in costs = elastic
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explain time
more elastic in long term as firms can enter/leave industry, more capital can be acquired and technological advances
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explain availability of substitutes
producer substitutes i.e. goods that a producer can produce as alternatives = more elastic
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Other cards in this set

Card 2

Front

Is PES positive or negative?

Back

Always positive

Card 3

Front

PES is inelastic.. values?

Back

Preview of the front of card 3

Card 4

Front

PES is elastic.. values?

Back

Preview of the front of card 4

Card 5

Front

What is meant by supply elastic

Back

Preview of the front of card 5
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