All Flashcards
How does a tax on producers affect the quantity supplied, and how does PES influence the magnitude of this effect?
A tax on producers decreases the quantity supplied. If PES is inelastic, the quantity supplied decreases less than if PES is elastic.
How does a subsidy to producers affect the quantity supplied, and how does PES influence the magnitude of this effect?
A subsidy to producers increases the quantity supplied. If PES is inelastic, the quantity supplied increases less than if PES is elastic.
How does a price ceiling affect quantity supplied when supply is inelastic?
A price ceiling below the equilibrium price will cause a shortage. With inelastic supply, the shortage will be smaller than if supply were elastic.
How does a price floor affect quantity supplied when supply is elastic?
A price floor above the equilibrium price will cause a surplus. With elastic supply, the surplus will be larger than if supply were inelastic.
If the government imposes a quota on production, how does PES affect the price change?
If PES is inelastic, the price will increase more significantly than if PES is elastic.
How does PES affect the burden of a tax on suppliers?
If PES is inelastic, suppliers bear a larger burden of the tax. If PES is elastic, consumers bear a larger burden.
How does PES affect the effectiveness of a government subsidy?
If PES is elastic, a subsidy will lead to a larger increase in quantity supplied.
How does a supply shock affect prices when PES is inelastic?
A supply shock will cause a larger price change when PES is inelastic.
How does a supply shock affect prices when PES is elastic?
A supply shock will cause a smaller price change when PES is elastic.
How does a government regulation that increases production costs affect the supply curve and the market equilibrium?
The supply curve shifts leftward, increasing the equilibrium price and decreasing the equilibrium quantity. The magnitude of these changes depends on PES and PED.
What is Price Elasticity of Supply (PES)?
Measures how sensitive the quantity supplied is to changes in price.
Define perfectly inelastic supply.
Es = 0; Quantity supplied doesn't change, no matter the price.
Define relatively inelastic supply.
0 < Es < 1; Quantity supplied changes a little with price changes.
Define unit elastic supply.
Es = 1; Percentage change in quantity supplied equals the percentage change in price.
Define relatively elastic supply.
Es > 1; Quantity supplied changes a lot with price changes.
Define perfectly elastic supply.
Es = ∞; Quantity supplied becomes infinite with even a tiny price increase.
What does a high PES indicate?
Producers respond a lot to price changes (supply is elastic).
What does a low PES indicate?
Producers don't change their output much when prices change (supply is inelastic).
What is the formula for calculating PES?
Es = (%ΔQs) / (%ΔP)
What is quantity supplied?
The amount of a good or service that producers are willing and able to offer for sale at a given price during a specific time period.
How does PES apply to a firm with high fixed costs?
A firm with high fixed costs typically has a relatively inelastic supply because it can't quickly ramp up production in response to price changes.
How does PES apply to a commodity like wheat?
Wheat typically has a perfectly elastic supply because there are many suppliers, and quantity supplied becomes infinite with even a tiny price increase.
A company has a monopoly on a unique product. What type of PES does it likely have?
Perfectly inelastic supply. They'll supply the same amount regardless of price.
How does PES apply to a firm that can quickly increase production with low costs?
Relatively elastic supply. Quantity supplied changes a lot with price changes.
If the price of apples increases, and apple farmers significantly increase their output, what does this suggest about the PES of apples?
It suggests that the PES of apples is relatively elastic, as the quantity supplied is responsive to price changes.
A rare painting is put up for auction. How does PES apply?
The painting has a perfectly inelastic supply because only one exists, and the quantity supplied cannot change regardless of the price.
How does PES relate to the availability of resources?
If resources are readily available, supply tends to be more elastic. If resources are scarce, supply tends to be more inelastic.
How does PES relate to the time it takes to produce a good?
Goods that take a long time to produce tend to have more inelastic supply in the short run.
How does PES relate to storage capacity?
If a good can be easily stored, supply tends to be more elastic, as producers can adjust the quantity supplied more easily.
How does PES apply to a concert venue with fixed seating?
The supply of seats is perfectly inelastic in the short run because the number of seats cannot change regardless of the price.