Unit 2 Microeconomics PES

Definition

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Price Elasticity of Supply (PES)

a measure of how much the quantity supplied of a good changes when there is a change in its OWN price​

Formula

PED=(%change in quantity supplied of good x)/(%change in price of good x)

%change=(new-old)/old*100

situation

PES=0-1 price inelastic supply

PES=0 perfectly inelastic supply

PES>1 price elastic supply

PES=1 unit or unitary elastic supply

PED=∞ perfectly elastic supply

Determiniants of PES​

Mobility/Flexibility of Production

Unused Capacity

Storage Ability

Rate of Production Costs

How flexible are the resources used to make the product? Can it be changed easily?

Is the firm operating at maximum efficiency or can they easily increase their output?​

Does the firm have the ability to store stock and increase the quantity supplied by going to the warehouse? Can the products be stored at all?​

How expensive and scarce are the resources used? Can they easily obtain more?

Refresher

Manufactured Good​

Primary Commodity​

Clothes, Machinery, Cars​

Raw Materials and food such as Agriculture, Gold, Oil, Diamonds​

Primary Commodities PES​

Due to the high investment and long time periods of work, primary commodities typically have a low PES (inelastic supply) compared to manufactured goods.​