1.2.5 elasticity of supply

• What does price elasticity of supply (PES) measure?


  PES measures the responsiveness of quantity supplied to changes in price.
• Why is price elasticity of supply important?


  It helps understand how suppliers react to price changes and adjust production levels.
• What is the formula for calculating price elasticity of supply?


  PES = (% Change in Quantity Supplied) / (% Change in Price)
• What does a price elasticity of supply greater than 1 indicate?


  It indicates elastic supply.
• What are the factors affecting price elasticity of supply?


  • Spare production capacity: More capacity leads to elastic supply.
  • Stocks of finished products: High stocks allow for elastic supply.
  • Ease and cost of factor substitution: High mobility increases elasticity.
  • Time period: Longer time allows for more elastic supply.
• What is an example of elastic supply?


  Producing an extra 10,000 cans of baked beans a day.
• What is an example of inelastic supply?


  Seats at a Premier League stadium.
• When is supply likely to be price elastic?


  • When producers can respond quickly to demand increases.
  • When there is spare capacity.
  • When production can be adjusted without significant cost increases.
• When is supply likely to be price inelastic?


  • When production capacity is fixed.
  • When there are high costs associated with increasing supply.
  • When goods are perishable and cannot be stored.
• What does perfectly elastic supply mean?


  Supply can meet demand without any change in market price.
• What does perfectly inelastic supply mean?


  Supply is fixed and does not respond to changes in market price.
• What might explain a product having a high price elasticity of supply?


  It has a non-perishable nature.