Price Elasticity of Supply

Question 1

What is PES?

Answer 1

the responsiveness of quantity supplied as a result of a change in price

Question 2

Equation for PES:

Answer 2

% change in quantity supplied/ % change in price

Question 3

Values of PES:

Answer 3

0- Perfectly inelastic
< 1- price inelastic
1- unitary
> 1- price elastic
infinite- perfectly elastic

Question 4

Factors affecting PES:

Answer 4

• Spare production capacity
• Stocks of finished products and components
• Ease and cost of factor substitution/factor mobility
• Time period and production speed

Question 5

How to improve PES in a competitive market:

Answer 5

• use latest technology
• provide training for workers
• having flexible workers who can do a range of jobs
• developing better distribution systems
• prolonging the shelf life of products