1.2.5 Price Elasticity of Supply

What is the shorthand of price elasticities of supply?

PES

What are price elasticities of supply (PES)?

The responsiveness of supply to a change in the price of a good.

What is the formulae of price elasticities of supply (PES)?

% change Q P1 change Q
—————- or — X ————-
% change P Q1 change P

PES > 1 =

Elastic

PES = 1 =

Unitary elastic

PES < 1 =

Inelastic

What is elastic (PES)?

•Quantity supplied changes by a larger % than price.
•Supply is relatively responsive to price.

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What is unitary elastic (PES)?

Quantity supplied changes by the same % as price.

What is Inelastic (PES)?

•Quantity Supplied changes by a small % than the price.
•Supply is relatively unresponsive to price.

What are the factors that influence price elasticities of supply (PES)?

•Availability of substitutes: substitutes increase elasticity.
•Spare production capacity: businesses can increase output and supply will be elastic.
•Time: supply is more elastic when a firm has more time to adjust its production levels.

Elastic graph

Inelastic graph