1.2.5 Price Elasticity of Supply

Price Elasticity of Supply (PES)

PES measures the responsiveness of the quantity supplied of a good to changes in its price.

Formula for Calculating PES

PES = (% Change in Quantity Supplied) / (% Change in Price).

Perfectly Elastic (PES = ∞)

Even a slight price change results in an infinite change in quantity supplied.

Perfectly Inelastic (PES = 0)

Quantity supplied does not respond to price changes.

Relatively Elastic (PES > 1)

A percentage change in price results in a larger percentage change in quantity supplied.

Relatively Inelastic (0 < PES < 1)

A percentage change in price results in a smaller percentage change in quantity supplied.

Factors Influencing PES

Time Horizon, Resource Availability, Production Technology, Perishability.

Short Run

A period during which some factors of production are fixed and cannot be adjusted.

Long Run

A period during which all factors of production can be adjusted.

Significance for Elasticity of Supply

In the short run, supply may be less responsive to price changes. In the long run, supply can be more responsive to price changes.