2.3 - Supply

• Supply is the amount producers are willing and able to supply/sell a product at a given price
• Law of supply (Direct Proportion):

  Price (UP) : Supply (UP)

  Price (DOWN) : Supply (DOWN)
• Movement along - Caused by a Price Change

  Shift - Caused by external factors
• Factors affecting Supply:

  • Productivity
  • Indirect Taxes
  • Number of Firms
  • Technology
• PES is the measure of responsiveness of a percentage change in quantity demanded to a percentage change in price
• PES = % Change in Quantity demanded / % Change in price
• PES = 0 --> 1 (Inelastic)
• PES = > 1 (Elastic)
• PES = 0 (Perfectly Inelastic)
• PES = 1 (Unit Elastic)
• PES = Infinite (Perfectly Elastic)
• Factors Affecting PES:

  • Time
  • Stocks
  • Spare Capacity
  • Sustainability of Factors of Production
  • Production Lag
  • Barriers to Entry