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1.2.5 Price elasticity of supply
What is PES
responsivness of quantity supplied to a change in price
PES calculation
Describe the value for relativley elastic PES
PES > 1
% change in QS > % change in price
Describe the value for inrelativley elastic PES
0 < PES < 1
% change in QS < % change in price
Describe the value for perfectly elastic PES
PES = infinity
% change in QS results from a change in price that is infininatly large
What is short and long run
short = time period where factors of production are not fixed
long = time period where at least 1 factor of production is fixed
What are the factors affecting PES
time period
availibility of factors of prodction
shelf life of a product
mobility of factors of production
Describe how time period affects PES
PES = inelastic in short run because producers can not change the fixed factor of production
PES = elastic in long run because all factors of production can change and are not fixed
Describe how availability of factors of production affects PES
PES = elastic if factors of production are readily available because producers can easily get the resources to increase production
Describe how shelf life of a product affects PES
PES = inelastic if goods are perishable and can not be stored
Describe how mobility of factors of production affects PES
PES = elastic if factors of production are mobile because producers can easily change use (occupational) or location (geographical) to increase production
an elastic PES is important to firms beause firms need the flexability to adapt to change
