PES - Unit 1 Year 11 Econs

Define PES

PES is the measure of responsiveness of quantity supplied of a good to a change in price, ceteris paribus

Name the 4 factors affecting PES

Time period, mobility of factors of production, stock and inventory levels and spare capacity of firms.

How does time period affect PES?

If time period is longer, suppliers are able to adjust output more easily because FOP are variable. Thus the longer the time period, the more price elastic supply is.

How does the mobility of factors of production affect PES?

The greater the ease and speed manufacturers are able to adjust their resources and production between products. The greater the responsiveness of quantity supplied to price changes. Therefore the more mobile factors of production are, the higher price elasticity they have.

How does the spare capacity of a firm affect PES?

If firms have spare capacity, it will be easier to respond with an increase of output to an increase in price, supply will be price elastic. If a firm is at maximum capacity, it will be more difficult to respond to an increase in price of a product. Therefore, supply will be prince inelastic.

How do levels of stock and inventory affect PES?

Firms that have higher levels of stock have the ability to respond quickly to increases in price, by supplying this stock to the market at a faster rate. Therefore supply is price elastic.