Studied by 1 person
credits https://www.econinja.net/microeconomics/2-6-supply-elasticity
what is price elasticity of supply?
how responsive the quantity supplied is for a good/service when the price changes
how do you calculate PES?
PES = (% change in Q)/(% change in P)
if the value is less than one, the product is supply inelastic
if the value is more than one, the product is supply elastic
draw the diagram for perfectly price inelastic supply
draw the diagram for price inelastic supply
draw the diagram for unitary price elastic supply
draw the diagram for price elastic supply
draw the diagram for perfectly price elastic supply
what are the determinants of PES?
time
mobility of factors of production
unused capacity
ability to store
rate at which costs increase
how does time affect PES?
given enough time, most goods are supply elastic as factories can be built/upgraded to provide for more supply - more time increases PES
how does mobility of factors of production affect PES?
if it is easy to employ more people, buy more land or build new capital, then it is easy to supply more if needed. more mobility increases PES.
how does unused capacity affect PES?
If factories have unused machines it is easy to increase supply. More spare supply = more PES
how does the rate at which costs increase affect PES?
if it costs the firm a lot to make additional goods, it will hesitate before supplying more. higher additional costs decrease PES.
