Price Elasticity of Supply

These flashcards cover key concepts related to Price Elasticity of Supply (PES), including its definition, determinants, and special cases.

Price Elasticity of Supply (PES)

Measures the degree of responsiveness of the quantity supplied of a product following a change in its price.

Price Elastic

Supply is considered price elastic when producers can easily increase supply without delay following a price increase.

Price Inelastic

Supply is described as price inelastic when firms find it difficult to change production in a given time period due to price changes.

Formula for PES

Price Elasticity of Supply is calculated using the formula: %ΔQS / %ΔP.

Perfectly Price Inelastic Supply

A situation where PES = 0; a change in price has no impact on the quantity supplied.

Perfectly Price Elastic Supply

A situation where PES = infinity (∞); the quantity supplied changes without any change in price.

Unitary Price Elasticity

When PES = 1; the percentage change in quantity supplied matches the percentage change in price.

Determinants of PES

Factors that affect PES include spare capacity, stock levels, number of producers, time period, and ease of factor substitution.

Impact of High PES

A high PES can make firms more competitive, helping to generate more sales revenue and profits by being responsive to price changes.

Special Cases of PES

1) PES = 0 (Perfectly Price Inelastic), 2) PES = ∞ (Perfectly Price Elastic), 3) PES = 1 (Unitary Price Elasticity).