top of page

Economics notes

# Price Elasticity Of Supply

➡️ Price elasticity of supply (PES) measures the responsiveness of quantity supplied to a change in price.
➡️ PES can be calculated by dividing the percentage change in quantity supplied by the percentage change in price.
➡️ PES can be either elastic, inelastic, or unitary. Elastic PES indicates that a small change in price will result in a large change in quantity supplied, while inelastic PES indicates that a large change in price will result in a small change in quantity supplied.
➡️ PES is important for businesses to understand, as it can help them to determine the optimal price for their products and services.
➡️ PES can also be used by governments to assess the impact of taxes and subsidies on the supply of goods and services.

### What is price elasticity of supply and how is it calculated?

Price elasticity of supply is a measure of the responsiveness of the quantity supplied of a good or service to changes in its price. It is calculated by dividing the percentage change in quantity supplied by the percentage change in price.

### How does price elasticity of supply affect market outcomes?

If the price elasticity of supply is high, then a small change in price will result in a large change in quantity supplied. This means that the market will be more responsive to changes in demand and prices will be more stable. On the other hand, if the price elasticity of supply is low, then a change in price will result in a relatively small change in quantity supplied. This means that the market will be less responsive to changes in demand and prices will be more volatile.

### What factors affect the price elasticity of supply?

The price elasticity of supply is affected by a number of factors, including the availability of inputs, the time horizon, and the degree of substitutability. If inputs are readily available and can be easily substituted, then the price elasticity of supply will be high. If inputs are scarce or cannot be easily substituted, then the price elasticity of supply will be low. Similarly, if the time horizon is short, then the price elasticity of supply will be low, while if the time horizon is long, then the price elasticity of supply will be high.

bottom of page