1. 1.2.5 Unit content Students should be able to:
Define price elasticity of supply
Calculate and interpret numerical values of price elasticity of supply (perfectly and relatively elastic, perfectly and relatively inelastic)
Analyse factors that influence price elasticity of supply
Distinguish between the short run and long run and assess its significance to price elasticity of supply

2. Price elasticity of supply
Price elasticity of supply (PeS) refers to the responsiveness of supply to changes in price.
The formula is:
PeS = % change in quantity supplied
% change in price
We know that as the price rises, firms want to supply more, but how much more?

3. Inelastic versus elastic PeS
As before, the answer shows the degree to which supply is elastic.
Answers below 1 are said to show price inelastic supply.
Answers above 1 indicate supply is more price elastic.
When does unitary elasticity occur?
Note that answers are always positive. Why?

4. Draw an elastic supply curve Draw an inelastic supply curve
Drawing PeS
Draw an elastic supply curve
Draw an inelastic supply curve

5. Uses for PeS
PeS is used to explain why prices rise or fall quite dramatically (or not) when there are changes in demand.
E.g. if there was a sudden increase in demand for tomatoes, why would supply be unresponsive?
So what can you conclude about the price elasticity of supply of tomatoes?

6. PeS and commodities What are commodities? Give examples
What can you say about the elasticity of supply of oil in the short term? Why?
However, what might happen if firms have stock-piled raw materials?

7. Factors affecting PeS

8. Perfectly inelastic supply curves
Perfectly inelastic supply curves mean that supply cannot increase even when price rises (especially in the short term).
E.g.

9. The short run and the long run
It may be more feasible for firms to change their supply in the long run rather than in the short run. Why?

10. Definition of the short run and the long run
The short run is defined as a period in which the firm is not able to vary its inputs of all factors of production. E.g. it may not be possible to ___________ a new factory.
The long run is defined as the period when all factors may be varied.
Note that __________ is often quite easy to vary whereas __________ inputs such as buildings take more time.

11. Special cases – perfectly inelastic
It may be that supply is fixed, so regardless of how much price increases, firms will not be able to supply any more.
E.g.
Equally, why may producers sell regardless of how low the price?

12. Special cases – perfectly elastic
The other extreme is where firms would be prepared to supply any amount of a good at the going price.