Price Elasticity of Supply (PES)

Front

What is Price Elasticity of Supply (PES)?

Back

PES is the responsiveness of the quantity supplied of a good to a change in its price.

Front

How is PES measured?

Back

PES is measured by the equation: % change in Qs / % change P = PES.

Front

What does a PES value of +0.4 indicate?

Back

For every 1% increase in the price of lemons, the quantity supplied increases by 0.4%.

Front

What does it mean if PES is greater than 1?

Back

The good’s supply is price elastic, meaning a change in price leads to a proportionately greater change in quantity supplied.

Front

What is unitary elasticity of supply?

Back

If the PES value is 1, it means that for every 1% change in price, the quantity supplied changes by 1%.

Front

What does it mean if PES is less than 1?

Back

The supply is price inelastic, meaning a change in the price of a good leads to a less than proportionate change in quantity supplied.

Front

What are the determinants of PES?

Back

Time, availability of factors of production, and stock and used capacity.

Front

How does time affect PES?

Back

In the short run, supply tends to be inelastic; in the long run, it becomes more elastic.

Front

How does the availability of factors of production affect PES?

Back

Supply tends to be more elastic when factors of production are easily accessible.

Front

How does stock and used capacity affect PES?

Back

Supply tends to be relatively price elastic when producers have spare capacity and available stock.