Unit 1: PES

• What does PES stand for in economics?

  Price Elasticity of Supply
• What does PES measure?

  PES measures the responsiveness of quantity supplied given a change in price.
• What is the formula for calculating PES?

  PES = \frac{\Delta Q}{\Delta P} \times \frac{P}{Q}
• What is the sign of PES?

  PES will always be positive.
• What are the classifications of supply based on price elasticity?

  • Price elastic supply: Any change in price results in a proportionately larger change in quantity supplied.
  • Price inelastic supply: Any change in price results in a proportionately smaller change in quantity supplied.
  • Perfectly inelastic supply: Regardless of change in price, quantity supplied remains the same.
  • Perfectly elastic supply: Any change in price results in quantity supplied falling to zero.
  • Unit elastic supply: Any change in price is equal to the change in quantity supplied.
• What is the condition for supply to be price elastic?


  Supply is price elastic when any change in price results in a proportionately larger change in quantity supplied.
• What is the condition for supply to be price inelastic?


  Supply is price inelastic when any change in price results in a proportionately smaller change in quantity supplied.
• What factors affect the price elasticity of supply?

  Factors include production lag, level of stocks, spare capacity, and time.
• How does production lag affect price elasticity of supply?


  The longer the production lag, the more price inelastic the supply becomes.
• How does spare capacity influence price elasticity of supply?

  More spare capacity leads to more price elasticity of supply.
• What is the relationship between the level of stocks and price elasticity of supply?


  A larger level of stocks results in more price elasticity of supply.
• What is the difference between short-run and long-run in terms of production factors?

  Short-run is any time period in which at least one factor of production is fixed, while long-run is any time period in which all factors of production are variable.
• How does the time period affect price elasticity of supply?

  Short-run supply is generally more inelastic, while long-run supply is more elastic.
• What is the implication of price elasticity of supply on production decisions?


  Price elasticity of supply affects how responsive producers are to changes in price when making production decisions.
• What are the characteristics of price elastic and price inelastic supply?

  • Price elastic supply:
  • Responsive to price changes
  • Larger percentage change in quantity supplied than in price
  • Price inelastic supply:
  • Less responsive to price changes
  • Smaller percentage change in quantity supplied than in price
• Steep line on graph indicates what about PES?

  PES is inelastic or perfectly inelastic
• Horizontal/ Shallow line on graph indicates what about PES?

  Elasticity and Perfect inelasticity