3.3 Price Elasticity of Supply

Question 1

What is the definition of price elasticity of supply?

Answer 1

Price elasticity of supply measures the degree of responsiveness of quantity supplied of a good to a change in the price of the good itself, ceteris paribus.

Question 2

What factors affect PES?

Answer 2

1. Length of time: the longer the time producers have to make necessary adjustments to production, the greater the responsiveness of quantity supplied to price changes.
2. Mobility of factors of production: If factors of production can be moved easily between alternative uses, supply becomes more price elastic.
3. Existence of spare capacity: firms with spare capacity can readily produce more. hence supply will be more price elastic.