2.6 Elasticity of supply Notes

Price Elasticity of Supply (PES)

Measures how much the quantity supplied of a good changes in response to a change in its price.

What is the purpose of Price Elasticity of Supply?

It helps businesses and policymakers understand how flexible supply is in different markets.

What does a PES value of 0.5 indicate?

It indicates that supply is inelastic, meaning quantity supplied does not increase significantly in response to a price increase.

Why is PES generally lower for primary commodities than for manufactured products?

Because primary products take longer to produce and are often perishable, making supply less responsive to price changes.

What factor primarily affects the PES of primary commodities?

The time required to adjust production.

How are manufactured goods different in terms of PES?

Manufactured goods can be produced quickly, allowing for a more elastic supply in response to price changes.

What challenge do perishable primary commodities face regarding PES?

Their perishability reduces the ability to store them and respond to price changes, making supply more inelastic.

What is one factor that allows manufacturers to respond more easily to price changes?

The ability to store products and manage large inventories allows for quick market responses.

Give an example of a primary commodity with a higher PES than usual.

Technological advances in farming or improved production methods may temporarily increase the PES for certain agricultural products.