Elasticity of Supply

Question 1

PES

Answer 1

Measures the responsiveness of supply to a change in price

Percentage change in supply / Percentage change in price ) SUPPER ON A PLATE

Always positive

PES = 0 = Perfectly inelastic = supply doesn't change with price
PES = 0-1 = Inelastic = Quantity supplied changes by a smaller amount than price
PES = 1 = Unit Elasticity = Supply changes by same percent as price
PES = >1 = Elastic = Supply changes more than price

Question 2

Factors determining PES

4

Answer 2

Time Period - short term supply will be more inelastic as takes time to adjust supply

Mobility of factors of production - Industries that use resources with no alternative use, e.g. coal mines can only produce coal, thus supply is inelastic. Car manufacturer could switch to producing electric cars quite quickly if need be

Capacity utilisation - Firms operating close to maximum capacity can only increase supply to a certain level thus inelastic

Stock levels - Some markets can store spare goods ready to be used if need be e.g. meat, thus elastic