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Define PES
A measure of how responsive the quantity supplied is to a change in price
What is the formula for PES
What does a PES of 0 mean
Perfectly inelastic supply. No matter how high price goes supply will not change.
What does a PES of between 0 and 1 mean
Price inelastic supply. A change in price will lead to. a proportionally smaller change in quantity supplied.
What does a PES of 1 mean
Unit elasticity of supply. A change in price leads to a proportional change in quantity supplied.
What does PES of between 1 and infinity mean
Price elastic supply. A change in price leads to a proportionally large change in quantity demanded.
What does a PES of infinity mean
Perfectly elastic demand. A change in price leads to no change in quantity supplied.
What factors influence the PES of a good or service
Factor mobility is what changes the PES of good or services. how quickly can more be supplied.
Time-The short run is where at least one factor production is fixed whereas long run is the period of time in which which all factors of production are variable. In the short run supply is inelastic. In the long run supply is elastic.
Availability and cost of switching resources from one use to another-If resources like labour have specific skills or the machinery is highly specialised the supply will be more elastic
Stock-If stocks of a finished good or services are high supply will be elastic.
Spare capacity- If a firm is underutilising machinery or under employing workers then supply is elastic as the firm can quickly increase supply.
Why is PES more elastic in the long run
In the long run all the factors of production are variable so more of a good can be produced in accordance to price changes.
What does a diagram showing an increase in demand when supply is price inelastic look like
What does a diagram showing an increase in demand when supply is price elastic look like
