Ch9 Price Elasticity of Supply (PES)

Front

What is Price Elasticity of Supply (PES)?

Back

PES is a numerical measure of the responsiveness of the quantity supplied following a change in the price of the product. It is calculated as PES = % change in quantity supplied / % change in price.

Front

What is price elastic supply?

Back

Price elastic supply is when the quantity supplied responds more proportionately to a change in the price of a product.

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What is price inelastic supply?

Back

Price inelastic supply is when the quantity supplied responds less proportionately to a change in the price of the product.

Front

What are the three factors that affect PES?

Back

1. Availability of stocks: If a business can build up, reduce, or hold stock, it can respond more easily to price changes. 2. Time period: The ease and speed with which a business can change production in response to a price change. 3. Productive capacity: Increased investment in a business increases its productive capacity, making it easier for supply to respond to price changes.

Front

What does a PES of 0.4 indicate?

Back

A PES of 0.4 indicates that the supply is price inelastic, as seen with the supply of water pumps from the Kenyan producer.

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What does a PES of 2 indicate?

Back

A PES of 2 indicates that the supply is price elastic, as seen with the supply of water pumps from the German manufacturer.