1.2.5 Price elasticity of supply

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