PES - Price elasticity of Supply

Question 1

Price elasticity of supply

Answer 1

Measures the responsiveness of the quantity supplied of a good or service to a change in price of that good or service.
Percentage change in quantity supplied / Percentage change in price

Question 2

High PES

Answer 2

A product with a PES greater than one will have a relatively flat supply curve (elastic). Meaning that are willing and able to increase the supply by a larger percentage than the price increase.

Question 3

Low PES

Answer 3

If the PES is less than one the supply curve will be relatively steep (inelastic). Meaning that when prices increase by a certain percentage suppliers are either unwilling and/or unable to increase supply by the same percentage.

Question 4

Significance of PES

Answer 4

The price elasticity of supply can affect the economic viability of a business as well as their ability to respond to changing price signals.
Generally speaking primary products (food/mining) tend to have a lower PES than manufactured goods.

Question 5

Factors affecting PES

Answer 5

Production period
Spare capacity
Durability of goods

Question 6

Production period

Answer 6

The quicker the process to produce something, the quicker suppliers can respond to the price, meaning a higher PES.

Question 7

Spare capacity

Answer 7

Refers to factors of production not being fully utilized. The more spare capacity the higher the PES as there is a greater ability to respond quickly to changing prices.

Question 8

Durability

Answer 8

High durability goods that are easy to stock up on have a higher PES (Objects, canned foods). Low shelf life goods have a lower PED. (fruit)