PES Exam Questions With 100% Correct Answers | Verified | Latest Update 2024, Exams of Advanced Education

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PES Exam Questions With 100% Correct

Answers | Verified | Latest Update 2024

PES Definition - Correct Answer-Price Elasticity of Supply measures the responsiveness of the producers to changes in the price of the good they are producing. Why PES is always positive - Correct Answer-Because there is a direct relationship between the price of a particular good and the quantity supplied to the market. PES Formula - Correct Answer-PES= Percentage Change in Quantity Supplied/ Percentage Change in Price PES = 0 - Correct Answer-Perfectly inelastic supply. Example: Harvest, Picasso's paintings. PES<1 - Correct Answer-Inelastic Supply PES = 1 - Correct Answer-Unit Elastic Supply PES>1 - Correct Answer-Elastic Supply PES = Infinity - Correct Answer-Perfectly Elastic Supply Determinants of PES - Correct Answer-There are 4. Acronym- LAMS Determinants of PES : Length of Time - Correct Answer-- Amount of time firms have to adjust their input of resources into the production of the good and the quantity supplied, in response to a change in price.

• Market period(short run): PES is very inelastic.
• Short Run: Land and capital are fixed but labour is variable so firms can respond to a certain degree. PES is slightly more elastic.
• Long Run: Land, labour and capital are all variable in the long run. Firms can adjust their input and PES is elastic. Ability to Store Stocks - Correct Answer-- Some firms may store some of their output in places such as warehouses.
• If the firm does this, they have a more elastic (higher) PES than firms that don't. -Firms that produce perishable goods like food cannot store goods for a long period of time.
• This only affects the PES for a short period of time because producers can only store so much. Once they are depleted, other determinants will impact the PES. Mobility of Factors of Production - Correct Answer-- The ease and speed with which the firm can shift resources and production between products. (Cake and Bread example)

• The easier it is do to that ^, the higher the PES and the greater the responsiveness.
• Whether the good is land intensive, labour intensive or capital intensive affects this.
• Low Tech Manufactured Goods and Low skilled services are elastic because people can be hired and trained and raw materials can be ordered.
• High Tech Manufactured Goods and High skilled services have highly inelastic supply. Spare Capacity of Firms - Correct Answer-- If a firm is currently not utilising all of the machinery and equipment that it owns, it will be easy for them to respond to changes in the price of a good because they can simply turn on those machines and increase output. -The greater the spare capacity, the more elastic the PES. -The lower the spare capacity, the more inelastic the PES. PES in Relation to Primary Commodities and Manufactured Goods - Correct Answer-- The PES of Primary commodities is lower than that of manufactured goods. -For agriculture, it takes a long time for fields to be planted and new crops to be grown. In such cases farmers need to increase their output of per unit land cultivated which will require technological change such as new seeds and this costs time and money. -For raw materials, time is needed to make the necessary investments and for the production of oil, natural gas and minerals. Because of the large costs, the firms don't respond as quick. Consequence of Low PES for Primary Commodities - Correct Answer-- Because of the low PES, price fluctuations from changes in demand have a larger impact on commodities. -These large price fluctuations mean large revenue fluctuations as well as unstable rev.