test

• High PES is important to firms


  • They can respond quickly to changes in price and demand
  • They need to make their supply as elastic/responsive to price changes as possible
• Measures undertaken to improve the elasticity of supply

  1. Flexible working patterns

  2. Using the latest technology

  3. Having spare production capacity
• If a firm has spare production capacity, it can quickly increase supply of a good without an increase in costs
• Supply is price inelastic in the short run


  • Due to the cost of building a new factory
  • Firms can find it difficult to switch production from one good to another over short periods of time
• Supply is more price inelastic in the short run


  Compared to the long run
• Short run


  Time period when a firm's capacity is fixed, and at least one factor of production is fixed
• Long run


  Time period when all factors of production are variable, so a firm is able to increase its capacity
• The distinction between long run and short run varies with different industries
• The supply of agricultural products is more price inelastic than other products
• Factors affecting PES


  • Periods of unemployment (supply tends to be more elastic)
  • Perishable goods (supply is inelastic as they cannot be stored for very long)
  • Firms with high stock levels (supply is elastic as they can increase supply quickly)
  • Industries with more mobile factors of production (supply is more elastic)
• In the short run, supply is price inelastic
• Government failure can be caused by inadequate information, administrative costs, and other factors
• Government intervention can cause the misallocation of resources


  There can be unintended consequences that lead to negative externalities
• Government interventions can cause market distortions rather than removing them
• Ways government bureaucracy can interfere with markets

  • Rules and regulations (red tape)
  • Enforcement of rules and regulations by government officials (bureaucracy)
  • Red tape can prevent markets from working efficiently
• Conflicting policy objectives are a source of government failure