PES (Price elasticity of Supply)

• Price Elasticity of Supply

  a measure of responsiveness of quantity supplied (Qs) to a change in price
• PES Equation

  percentage change in quantity supplied divided by percentage change in price
• PES is usually

  Positive as there is a positive relationship between price and quantity supplied
• Price Increase

  extension in supply
• Price decrease

  contraction in supply
• PES unitary

  1
• PES elastic

  1 to infinity
• PES inelastic

  0 to 1
• Perfectly PES inelastic

  0
• Perfectly PES elastic

  infinity
• PES Elastic

  If something is price elastic in supply then producers are very responsive to price changes

  A change in price leads to a more than proportional change in quantity supplied (Qs)
• PES Inelastic

  If something is price inelastic in supply then producers are not very responsive to price changes. A change in price leads to a less than proportional change in Quantity supplied (Qs)
• PES inelastic products

  Mercedes AMG
• PES Unitary

  If an item is unitary then a change in supply leads to the same Percentage change in Quantity Supplied
• PES Unitary Diagram


  any straight line through the origin
• PES Determinants

  1. Spare Capacity
  2. Time Period
  3. Availability of Stock
  4. Range of Products
• Spare Capacity


  If a business lacks spare capacity (factors of production) then producers are less able to increase the quantity supplied when there is an increase in price. Therefore, PES is likely to be inelastic
• Time (period)

  If it takes long time to produce a product then it is more difficult to increase supply when there is an increase in price. Therefore, it is price inelastic. eg house and planes
• Availability of Stock

  If there is a lack of stock in the final consumer good (if there is little left) then it is difficult to increase supply when prices increase. Therefore making it price inelastic
• Range of Products

  If a producer has a range of products that they sell, then when the price of one good increases, they are able to increase supply by switching factors of production away from other goods. eg Apple can switch production away from ipads and towards macbooks