1.2.5: Elasticity of supply

• Price elasticity of supply (PES): Responsiveness of supply to a change in price
• Formula for Price elasticity of supply: % change in Quantity supplied / % change in price
• Unitary elastic: PES = 1

  Relatively elastic: PES > 1

  Relatively inelastic: PES < 1

  Perfectly elastic: PES = infinity

  Perfectly inelastic PES: PES = 0
• Factors affecting PES:

  Time: The more time a supplier has to increase productive capacity, the greater the PES

  Stocks: If a firm has a stockpile of goods, PES will be higher as they can be used

  Working below full capacity: If a firm is below full capacity they can begin producing at full capacity, increasing PES

  Availability of factors of production: e.g if there are no doctors a clinic cannot increase their PES by much

  Ease of entry: Large costs of start-up equipment make it hard to increase supply, decreasing PES

  Availability of substitutes: More substitutes = higher PES