Econjess
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Hi there, can someone answer me regarding question 11 from a cambridge past paper 9708 May/June 2014 paper 11?
How is that moving along the supply curve, the PES diminishes as output increases??
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wizzerd15
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(Original post by Econjess)
Hi there, can someone answer me regarding question 11 from a cambridge past paper 9708 May/June 2014 paper 11?
How is that moving along the supply curve, the PES diminishes as output increases??
Moving up the PES curve means qty supplied rises as price rises (ceteris paribus). As s a result more resources/factors/inputs are used up for the production. As more resources are employed, it diminishes the firm's ability to respond quickly to any changes (in this case, rise in prices) in the future, thus the PES falls as output increases. Supply gradually becomes less elastic, i.e. PES falls. When resources are fully employed, you may notice that the PES curve is vertical, meaning it had become perfectly inelastic.
Hope this answer your question.
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