Price elasticity of supply

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Presentation transcript:

Price elasticity of supply © Hodder & Stoughton Limited 2015

Price elasticity of supply (PES) PES measures the responsiveness of quantity supplied to a change in price Formula: percentage change in quantity supplied percentage change in price Theme 1 © Hodder & Stoughton Limited 2015

Elastic or inelastic? Elastic supply If the firm is able to increase supply quickly in response to a change in price, then supply is said to be price elastic in supply Inelastic supply If the firm is unable to increase supply quickly in response to a change in price, then supply is said to be price inelastic in supply Theme 1 © Hodder & Stoughton Limited 2015

Factors determining PES Time Weather conditions Ease of access to specialist equipment Planning permission and other government restrictions Stocks Spare capacity Theme 1 © Hodder & Stoughton Limited 2015

Short and long-run supply Theme 1 © Hodder & Stoughton Limited 2015