1.2.5 Elasticity of supply

• Price elasticity of supply (PES):

  The responsiveness of quantity supplied to changes in price.

  PES = %∆Qs / %∆P

  PES is always a +ve number.
• Interpreting PES numbers

  Greater than 1 = Elastic

  Between 0 and 1 = Inelastic

  1 = Unitary

  Infinite ∞ = Perfectly elastic

  0 = Perfectly inelastic
• Price elastic supply


  If supply is price elastic, then a % change in price leads to a greater % change in quantity supplied.

  
• Price inelastic supply


  If supply is price inelastic, then a % change in price leads to a smaller % change in quantity supplied.

  
• Determinants of PES

  -Complexity/length of the production process

  -Availability of factors of production

  -Time period