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  • Created by: lucy
  • Created on: 21-04-14 20:04


Price elasticity of supply

PES - The sensitivity of quanity supplied due to a change in price. Calculating and interpreting PES

The result is always positive because as price rises QS rises, as price falls QS falls.    Influencing factors -

Stocks - if a firm has some spare surplus of stocks it can respond to a price change more quickly e.g. if price rises then they can still supply until the surplus is used up. Therefore more ELASTIC

Spare capacity - if a firm does have some spare capacity in their factory e.g. they may have some machines die or staff on part time contracts they coulf use this capacity up. Staff could work more hours, QS can change relativley quickly - more elastic.

Ability to swtich resources - if some FOP have very particular skills it may be difficult to relocate them to making a different product therefore supply cannot change so quickly and therefore is inelastic.

Pershiability - some goods cannot be stored e.g. fresh fruit and vegetables. This makes their supply more difficult to change quickly and therefore more inelastic.

Ease of entry into an industry - it is difficult for a firm to enter an industry this can make PES more inelastic e.g. car manufacturing. It is very expensive to build a car plant quickly and start  production so therefore PES might be more inelastic in these industries.

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