Elasticity of Supply

PES

measures the responsiveness of quantity supplied to a change in price

How to calculate PES

A steep supply curve shows a good where what

quantity supplied is not very responsive to a change in price, it will have inelastic supply.

when there is inelastic supply, the percentage change in quantity supplied will be what

smaller than the percentage change in price

shallow supply curve shows a good where what

quantity supplied is more responsive than a change in price, it will have elastic supply

when there is elastic supply, the percentage change in quantity supplied will be what

greater than the change in price, PES will be a positive number

when PES is 0

perfectly inelastic

When PES is between 0 and 1

Relatively inelastic

when PES is more than 1

Relatively elastic

when PES is infinite

perfectly elastic

Supply is likely to be price inelastic if (3)

- complex to make

- raw materials are scarce

- the production process is lengthy and if it is in the short run

short run

fixed factors of production

Supply is price elastic if (2)

- the good is quick and easy to make

- if it is in the long run

It is difficult to adjust factors of production in the short run therefore it makes supply what

inelastic