Price elasticity of supply

List the factors of PES

• Availability of Factors of production

• Time period

• Stocks

• Spare capacity

• Government regulation

• Technology

Spare capacity

If a firm has under utilised machinery and under employed workers if possible to introduce a new shift or workers then supply is likely to be elastic

Government regulations

Entry or exit can make it more difficult for producers to tap into a lucrative market. Also trade restrictions can make it more difficult for producers to respond to a price change inelastic supply.

Technology

Through automation and improvement in technological advancements means that producers can respond quickly to a price change

Competitive supply

A situation in which a firm can use it’s factors of production to produce alternative products they are willing to pay

Contraction of supply

A movement down the supply curve

Elasticity

A measure of the sensitivity of one variable to changes in another variable

Extension of supply

A movement up the supply curve

Joint supply

Where a firm produces more than one product together

Law of supply

As prices rise, quantity supplied rises due to the incentive for producers to gain profit

Long run

Is a time Period in which all factors of production can be varied

Price elasticity of supply

A measure of the sensitivity of quantity supplied of a good or service to a change in the price of a good or service

Short run

Is a time period in which there is at least one fixed factor of production

Subsidy

A grant given by the gov to producers to encourage production of a good or service

Supply curve

A graph showing the quantity supplied at any given price

Supply

The quantity of a good or service that firms choose to sell at any possible price in a given time period

Greater than 1 (>1)

Price elastic

Less than 1 <1

Inelastic supply

0

Perfectly price inelastic

Infinity

Supply is perfectly price elastic

1

Unit price elastic

Perfectly Price Elastic Supply (PES = ∞)

Producers are willing to supply any amount of the good at a specific price — but nothing if the price falls even slightly.