2.3 Price Elasticity of Supply Flashcards
What’s the definition of PES?
PES is a measurement of the responsiveness of quantity supplied to a change in price.
What’s the formula for PES?
PES = %Change in QS / %Change in P
What does it mean if the PES value is more than 1?
Elastic
What does it mean if the PES value is less than one?
Inelastic
What does it mean if the PES value is zero?
Perfectly inelastic
What does it mean if the PES value is infinity?
Perfectly elastic
What does it mean if the PES value is one?
Unitary elasticity
What does it mean if PES is elastic?
Suppliers respond significantly to price changes
What does it mean if PES is inelastic?
Suppliers respond minimally to price changes.
What are the 4 factors affecting price elasticity of supply?
- Time Period
- Availability of stock
- Mobility of factors of production
- Nature of the product
How does the factor “Time Period” affect PES?
Supply is more elastic in the long run as firms can adjust production
How does the factor “Availability of stock” affect PES?
High stock levels make supply more elastic.
How does the factor “Mobility of factors of production” affect PES?
Easier mobility increases elasticity.
How does the factor “Nature of the product” affect PES?
Perishable goods tend to have inelastic supply because they are harder to stock
How does PES vary between the immediate period, short run and long run?
- Immediate period: Supply is perfectly inelastic
- Short run: Some factors can adjust so PES increases.
- Long run: All factors adjust so supply is more elastic.
