Unit 2.3 - Elasticity of supply

• Price elasticity of supply (PES)

  Measure of the responsiveness of the quantity supplied to a change in price of the product

  
• Calculating price elasticity of supply

  1. Calculate the percentage change in quantity demanded

  2. Calculate the percentage change in price

  3. Divide the percentage change in quantity by the percentage change in price

  
• PES values


  • Elastic ⇒ >1
  • Inelastic ⇒ <1
  • Perfectly elastic ⇒ ∞
  • Perfectly inelastic ⇒ 0
• Factors affecting price elasticity of supply

  • Cost and availability of additional factors of production
  • Regulation of production (entry and exit into the market)
  • The number of producers in an industry
  • The amount of stock available
  • The time period (Length of the production period)
  • The existence of spare production capacity

  
• PES for agricultural products are usually more price inelastic than for manufactured goods
• Explains the speed and ease which a business can respond to changing market conditions
• End of topic questions (PES and PED/XED)
• MCQ - 1
• MCQ - 2
• MCQ - 3
• MCQ - 4
• MCQ - 5
• MCQ - 6
• MCQ Answers