Chapter 9 : PES

• A supply curve shows the relationship between the price of a good and the quantity that producers are willing and able to supply

  
• The supply curve is upwardly sloping, indicating that as the price of a good increases, the quantity supplied by producers also increases
• Producers are more likely to increase supply as the price rises because it helps cover costs and generates profit
• A perfectly elastic supply curve is perfectly horizontal, meaning quantity supplied is infinitely responsive to price changes

  
• In contrast, a perfectly inelastic supply curve is perfectly vertical, indicating no change in quantity supplied in response to price changes
• Price elasticity of supply (PES) measures the responsiveness of supply to price changes
• If PES > 1, supply is elastic, meaning firms can increase supply quickly at little cost
• If PES < 1, supply is inelastic, making it expensive and time-consuming for firms to increase supply
• A perfectly inelastic supply has PES = 0, indicating fixed supply that cannot easily meet changes in demand
• Supply is perfectly elastic when PES = infinity, meaning any quantity demanded can be met without changing price
• Factors influencing PES include time scale, spare capacity, level of stocks, substitutability of factors, and barriers to market entry
• In the short run, supply is more price inelastic because producers cannot quickly increase supply; in the long run, supply becomes more price elastic
• Spare capacity allows for quick supply increases, while perishable goods have more inelastic supply
• Mobile factors like labor and capital lead to more price elastic supply as resources can be reallocated where needed
• Higher barriers to market entry result in more price inelastic supply as it's difficult for new firms to enter and supply the market