Price Elasticity of Supply

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  • Price Elasticity of Supply
    • % change in QS divided by % change in price
      • *Golden Rule* SOT - supply on top
    • >1=elastic 1=unit elastic 0--1=inelastic 0=perfectly inelastic /=perfectly elastic
    • Elastic - %change supply > %change in price (stock, spare capacity, occupation mobility)
    • Inelastic - %change price > %change QS (low stock, long production process etc)
    • Unit = supply rises in falls in direct proportion to change in P
    • Perfectly inelastic = no impact on supply
    • Perfectly elastic = supply shifts following price change to that horizontal level.
    • What determines PES?
      • Stocks of raw materials & completed products
      • Time/length of production process
      • Spare capacity available
      • Ease with which factors can be switched


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