1.2.5 elasticity of supply

What is price elasticity of supply (PES)?

The responsiveness of quantity supplied to a change in price.

What is the formula for price elasticity of supply?

PES = % change in quantity supplied ÷ % change in price

How are PES values classified?

• PES = 0 → perfectly inelastic supply

• 0 < PES < 1 → relatively inelastic supply

• PES = 1 → unitary elastic supply

• PES > 1 → relatively elastic supply

• PES = ∞ → perfectly elastic supply

What do different supply elasticities look like on a diagram?

What factors affect price elasticity of supply? TEAASS

• Time period

• Stocks

• Spare capacity

• Availability of factors of production

• Ease of entry into the market

• Availability of substitutes in production

How does time affect price elasticity of supply?

Supply becomes more elastic in the long run because firms can adjust production.

How do stock levels affect elasticity of supply?

If firms hold large stocks, supply can increase quickly, making it more elastic.

How does spare capacity affect elasticity of supply?

Firms with spare capacity can increase output easily, making supply more elastic.

How does availability of factors of production affect PES?

If labour and resources are easily available, supply becomes more elastic.

How does ease of entry into a market affect PES?

If it is easy for firms to enter, supply becomes more elastic.

How do substitutes in production affect PES?

If producers can switch production easily, supply becomes more elastic.

What is the difference between short-run and long-run elasticity of supply?

• Short run: supply is usually more inelastic

• Long run: supply becomes more elastic