Price Elasticity of Supply

• Define PES and hence give its formula.

  Price Elasticity of Supply (PES) is the measure of the responsiveness of the quantity supplied due to a change in price. PES is the extent to which the quantity supplied changes when the price of a product changes. The formula is: Percentage change in quantity supplied/ Percentage change in price.
• What is elastic supply? Give examples.

  Elastic supply is when the quantity supplied changes by a greater percentage than the change in price. In this case, PES is greater than 0 but less than infinity (ignoring the sign). It is illustrated by a shallow curve. (A straight line elastic supply curve touches the verticle axis)

  Examples-

  1. Rubber bands, pencils, or erasers are elastic supply as they are easy to produce and not time-consuming.
  2. Clothes are elastic supply.
• What is inelastic supply? Give examples.

  Inelastic supply is when the quantity supplied changes by a smaller percentage than the change in price. The PES is less than 1 but greater than 0. The supply curve is steep. (A straight line inelastic supply curve would touch the horizontal axis)

  Examples-

  1. Apartment rents or tickets to planes, trains, etc.
  2. Raw materials that need crop growth.
• Write down the determinants of price elasticity of supply.

  The determinants of PES are-

  1. The time taken to produce the products.
  2. The cost of altering the supply.
  3. The feasibility or how easy it is to store the products.
• Explain why time taken to produce a product affect its PES

  1. The time taken to produce it:- If a product is time-consuming to produce, it is most likely to be inelastic supply and vice versa. This is because when demand increases so does the price, the firms start to increase their supply but cannot as it takes time for production of these products. This is because the firm most likely is working at full capacity. Thus the supply is less responsive to price changes.