PES

Price Elasticity of Supply (PES)

The responsiveness of the percentage change in quantity supply to a change in price. It is more relevant for producers.

Elastic Supply

When the percentage change in quantity supply is greater than the percentage change in price. Producers are highly responsive to price changes. PES > 1.

Inelastic Supply

When the percentage change in quantity supply is less than the percentage change in price. Producers are less responsive to price changes. 0 < PES < 1.

Perfectly Elastic Supply

Producers are completely responsive to a change in price. Any change in price will lead to the quantity supply falling to zero. PES = infinity.

Perfectly Inelastic Supply

Producers are completely unresponsive to a change in price. The quantity supply remains fixed regardless of price changes. PES = 0.

Unitary Supply

When the percentage change in quantity supply is equal to the percentage change in price. PES = 1.

Ease of changing production

The ability to easily change the production process or technique. If it is easy to change production, producers can quickly adjust their supply.

Availability of resources

The ease of obtaining raw materials, labor, and machines. If resources are readily available, producers can increase supply easily.

Storability

The ability to store goods for a longer time. When prices increase, producers can increase supply significantly if the goods can be stored without deterioration.

Time taken to produce the goods

The duration required to produce the goods. Short production time enables producers to increase supply easily.

Application of PES to Firms

PES helps firms plan ahead and determine the quantity of goods and services to produce based on demand. It is particularly useful for dealing with inelastic supply goods, where production needs to be increased in advance to prevent shortages.