Price elasticity of supply (PES)

What is PES?

the responsiveness of QS to a change in price

What is the formula for PES

%change in QS/ % change in price

What will an elastic supply curve look like?

What will an inelastic supply curve look like?

What are all the factors that affect PES?

• spare capacity

• availability of factors of production

• state of the economy

• stockpiles and perishability

• time

TEASS (tea with two sugars)

What is spare capacity?

space/ capacity that is not used

a second factory has more spare capacity than another factory , which of them is more likely to be elastic or inelastic? And why?

Factory 1 has little spare capacity so if the price were to rise, for instance, Factory 1 would not have the space or machinery to increase its output by much in response. This suggests firms with little spare capacity cannot respond much to changes in price, which implies inelastic supply.

Factory 2, however, has a lot more spare capacity so if the price were to rise, Factory 2 would be able to use up its spare capacity and increase output to take advantage of the higher price. This suggests that more spare capacity means a company is more responsive to a change in price, which implies that supply will be more elastic.

Will having lots of spare capacity be inelastic or elastic?

elastic because firms will be able to increase supply more readily to a change in price.

What are the factors of production?

land, labour, enterprise and capital

diamond rings require factors with little availability and cucumber sandwiches require factors which are very available, which of them is more likely to be elastic or inelastic? and why?

Because it's so easy to find the inputs required to produce cucumber sandwiches, if the price of cucumber sandwiches, producers would easily be able to find more resources to produce more sandwiches. They would therefore be able to respond a lot to a change in price, suggesting elastic supply.

However, it's very difficult to find the factors of production to produce a diamond ring. So, if the price of diamond rings were to rise, although producers would like to supply more diamond rings, it would be very difficult for them to find the resources to do so. As a result, they wouldn't be able to increase their supply of diamond rings by a large %, so the supply of diamond rings would be unresponsive to price, suggesting inelastic supply.

Will having low availability of FOB mean the good produced is inelastic or elastic?

inelastic

If the state of the economy is bad, if people are unemployed and shops are vacant after businesses had to close down, how easy will it be to expand your business and increase the quantity of coffee you supply? and why?

Elastic supply- very easy to expand a business. If workers are unemployed, he'll easily be able to find people to work for him. If shops are vacant, he'll easily be able to find land for his new coffee shop.

f the economy was booming, if everyone has a job and shops are full, how easy will it be for Kanye to increase the quantity of coffee he supplies now? and why?

It will now be a lot harder for Kanye to increase the quantity of coffee he supplies because shops and employees and less available, they're already occupied or employed. So Kanye will struggle to increase production, suggesting inelastic supply.

what is a stockpile?

stock of goods held in reserve

cheese is hard to stockpile whereas sharpeners are much easier to stockpile, which of them is more likely to be elastic or inelastic? and why?

Sharpeners are more likely to be elastic.This is because sharpeners can be easily stockpiled, so if the price of sharpeneres were to rise, producers could react quickly by selling the sharpeners they have in storage, increasing quantity supplied by a large %, suggesting elastic supply.

Cheese, however, is more likely to be inelastic. This is because cheese cannot be easily stored due to its perishability: cheese will go off if stored for too long, so large quantities of cheese cannot be stockpiled long-term. As a result, if the price of cheese were to rise, producers wouldn't have a large stockpile of cheese to begin selling to consumers, they would have to make additional cheese from scratch which takes a long time. This means producers would not be able to respond much, suggesting inelastic supply.

How short is the short run? And how long is the long run?

In the context of production, the short run is when at least one factor of production is fixed. The long run is when all factors of production can be changed.

If the price of a race car were to go up in the short run, would race car producers be able to increase their quantity supplied by a small % or a large %?

In the short run, race car producers would only be able to increase quantity supplied by a small % because they will be limited by their fixed factors of production. For instance, they might have a fixed amount of factory space, a fixed number of machines, and so even if the price of race cars goes up massively, race car producers will not be able to produce many more race cars because they don't have enough space or machinery.

A perfectly inelastic supply will look like:

When PES=0, we say that supply is:

perfectly inelastic

What is an example of perfectly inelastic supply?

coconuts- take 10 years for new trees to go

elastic supply is when PES is between:

1 and infinity

An elastic supply curve will look like:

A unitary elastic supply curve will look like:

Write the definition of: Perfectly inelastic supply

When PES = 0. Supply will not respond at all to a change in price.

E.g. in the short run, even if the price increases by a huge %, the supply of coconuts will not change because the number of coconut trees is fixed

Write the definition of: Perfectly elastic supply

When PES = ∞. Supply will be infinitely responsive to a change in price.