Practise defining, calculating and interpreting PES and explaining how time, spare capacity, stocks, factor mobility and production constraints affect firms' output response.
What is price elasticity of supply?
the change in the quantity supplied when a price changes
the change in the quantity supplied when demand changes
the comparison of the proportionate change in supply to the proportionate change in demand
the comparison of the proportionate change in supply to the proportionate change in price
D
Four firms produce furniture. The table shows the price elasticity of supply (PES) for each firm.
If the price of furniture rises by 5% which firm would experience an increase in quantity supplied of 2.5% ?
PES for
furniture
2.5
2.0
0.6
0.5
D
The price elasticity of supply (PES) for a new smartphone is estimated to be 0.8 in the short run and 1.8 in the long run.
Explain what these estimates mean for producers and consumers of smartphones and consider why the estimates differ.
Follow the point-based marking guidance at the top of this mark scheme and award:
- up to 3 marks for AO1 Knowledge and understanding up to 3 marks for AO2 Analysis
- up to 2 marks for AO3 Evaluation.
AO1 Knowledge and Understanding (max 3 marks)
Meaning of price elasticity of supply (1) an accurate formula (1) an explanation of what is meant by elastic/inelastic based on the responsiveness of changes in supply to changes in price (1).
AO2 Analysis (max 3 marks)
Analysis of why the values may differ due to e.g., the time period, level of stock, changes in the production process etc. Up to 2 marks for each reason explained. Maximum of 3 marks overall
AO3 Evaluation (max 2 marks)
An assessment as to why the impact on consumers and producers may differ according to these different estimates e.g., on availability, pricing and investment decisions.