• Created by: meryemb12
  • Created on: 06-03-20 17:14

price elasticity of supply

-Measures how the quantity of supply reacts to a change in price 

-Firms aim for high elasticity of supply -so they can react rapidly to changes in price and demand

To increase elasticity:

  • Improve their technology
  • introduce flexible working hours 
  • have an excess production capacity

Price Elasticity of Supply:

PES- %change in quantity supplied/%change at price 

-the elasticity of supply greater than 1 =percentage change in quantity supplied will be greater than one %price change

-higher PES =more elastic supply (PES >1)

-smaller PES  =more inelastic supply (1>PES >0)

1 of 3

factors affecting the price elasticity of supply

Perishable goods :

  • products which are more likely to perish due to weather conditions like crops will have a more inelastic supply 

Recessionary period:

  • during a period of high unemployment -we see a more elastic supply 
  • because if firms try to expand their production -they could have a larger amount of labour to hire 
  • their ability to attract labour is high

Agility :

  • agile firms keep high levels of stock
  • this makes supply more price elastic since they can react quickly to increases in demand by releasing stock
  • Firms with agile factor mobility= more price elastic in supply
2 of 3

elasticity of supply in the long and short run

short-run :

  • capacity fixed 
  • one /more factors of production are fixed (more likely capital)
  • hard to increase production in this period 
  • supply is inelastic

long-run :

  • no factors of production are fixed -variable 
  • firms are able to increase capacity 
  • supply is more elastic in the long run as they have more time to react to price and demand shifts 
3 of 3


No comments have yet been made

Similar Economics resources:

See all Economics resources »See all elasticity resources »