Economics (Year 11)
Price Elasticity of Supply, (PES) is a measure of how reactive producers' are in supplying a good or service in response to a change in the price of the product. PES can be found using the formula above in order to determine the supply elasticity of certain goods.
PES Outcomes and Factors
The table above shows how the outcomes of the PES formula can determine how supply elastic or supply inelastic a product is. Furthermore, multiple determinants influence the price elasticity of supply of goods and services:
Time Available: If producers can respond quickly to changes in prices, the more supply elastic the good will be. However, as it may be challenging to suddenly increase supply and capacity in a short period of time, goods will commonly be inelastic in the short run. In the long run, producers have more time to invest in ways to increase output, therefore making goods more supply elastic.
Ability to Respond: If the nature of the industry allows producers the time to respond, the goods will be more elastic. However, for industries such as Agriculture, if crops fail, it takes farmers months to respond and increase supply, making products supply inelastic.
Storage: If a producer has the space available to store stock, the supply will be more elastic as it is easy and quick to increase output.
Reliance on External Factors: Bad weather or another supplier, for example, could prevent expansion
Unused Capacity: With spare capacity, production can be increased quickly
Technical Complexity: The more complex the production process, the longer the time it will take to create new capacity
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