1.2.5 Elasticity of supply Flashcards
Elastic supply
produces can increase their output without a rise in cost or time delay
PES= more than 1
Inelastic supply
firms find it hard to change the production after a change in price
PES= less than 1
Price elasticity of supply
PES= %change in QS
%change in price
PES measures the relationship between change in QS and a change in price
•PES=more than 1 supply is price elastic
•PES=less than 1 supply is price inelastic
•PES=0 supply is perfectly inelastic
•PES=infinity supply is perfectly elastic
Factors that affect elasticity of supply
•Spare production capacity
•Stocks of finished products and components
•Ease and cost of factor substitution/factor mobility
•Time period and production speed