Price Elasticity Of Supply

PES = Price Elasticity of supply

Price elasticity of supply is the responsiveness of supply to a change in price.

PES = % change in quantity supplied / % change in price

If it is between 0-1 then it is inelastic and if its 1+ then it is elastic.

The graph on the right is inelastic supply and the one on the left is elastic.
If it is elastic then the producers are able to increase supply without a rise in cost or time delay.
If inelastic then producers find it hard to change level of supply in a given time period.

What determines whether it is inelastic or elastic?

• Level of spare capacity - if there is lots of spare capacity then the supply curve is elastic as they are able to supply more easily
• State of economy - if economy is in good state then it will be elastic
• Perishability - If a good is hard to store ie. flowers then the supply curve will be inelastic, if it is easy to store then it will be elastic
• Time period - if it is a short time period PES will be inelastic as it is hard to increase output with short notice.