price elasticity of supply

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


  Responsiveness of supply to price changes
• How is PES calculated?

  % change in quantity supplied / % change in price PES is always positive
• What is the value of unitary elastic PES?

  PES = 1
• What does a unitary elastic supply curve look like?

  Starts at the origin, steeper than elastic
• What is the condition for relatively elastic PES?

  PES > 1
• How does a relatively elastic supply curve appear?

  More sloping, starts on the price axis (y axis)
• What is the condition for relatively inelastic PES?

  PES < 1
• What does a relatively inelastic supply curve look like?

  Steep, starts on the quantity line axis
• What is the condition for perfectly elastic PES?

  PES = infinity
• How is a perfectly elastic supply curve represented?

  As a horizontal line
• What is the condition for perfectly inelastic PES?

  PES = 0
• How is a perfectly inelastic supply curve represented?

  As a vertical line
• What do the curves S1 (through origin), S2(on y axis), and S3 (on x axis)represent?

  • S1: Unitary elastic supply curve
  • S2: Relatively elastic supply curve
  • S3: Relatively inelastic supply curve
• How does time affect PES?

  Longer time increases supply elasticity
• What happens to supply in the immediate term regarding PES?

  Supply is perfectly inelastic as a supplier can only sell

  the amount of product they have so no matter the increase in price quantity supply will never change.
• What defines the short term in economics?

  At least one factor of production is fixed
• What defines the long term in economics?

  All factors of production are variable
• How does having stockpiles affect PES?

  Increases elasticity when prices rise
• What happens if a business is working below full capacity?

  Supply becomes more elastic with price increase, as higher price means more income allowing business to work at full capacity.
• How does the availability of factors of production affect PES?

  Limited skills can make supply inelastic
• How does ease of entry into the market affect PES?

  High start-up costs make supply inelastic
• How does the availability of substitutes affect PES?

  More substitutes increase supply elasticity
• How would a rise in price affect a good with many substitutes?

  Supply would change significantly
• What are the factors affecting price elasticity of supply (PES)?

  • Time
  • Stocks
  • Working below full capacity
  • Availability of factors of production
  • Ease of entry into the market
  • Availability of substitutes
  • production lags
• what does perfectly elastic mean


  means that PES = infinity, means extremely sensitive to price change.

  a change in price will cause quantity supply to fall to 0. shown by a perfectly horizontal line intercepting the y axis.
• what does perfectly inelastic mean


  PES=0: a change in price has no effect on output

  so demand is completely unresponsive to price. This would be shown by a vertical line.
• production lags

  its the time delay between the increase in demand/price and the ability to produce more of the good. E.G wheat is difficult to increase supply rapidly as it takes time to grow.