Price Elasticity of Supply

Price elasticity of supply (PES) is a measure of how reactive supply is to a change in price.

If a good is said to be PES elastic then a small change in price will lead to a large change in supply.

If a good is said to be PES inelastic then a small change in price will have a small impact on supply.

There are 4 main factors that affect PES:

If there is spare capacity then it is easy for the firm to decrease the spare capacity in order to increase output. 

If there is excess levels of stock then it is easy for firms to temporarily increase the supply of a good. 

If the factors of production are occupationally mobile then they can be used to increase the supply of a good.

If it takes a long time to produce a good then it is likely that the firm will not be able to increase the supply of the good with ease.

The formula for PES is as follows:

If the PES is more than 1 then it is price elastic.

If the PES is less than 1 then it is price inelastic.

If the PES is exactly 0 then it is perfectly inelatic.

If the PES is infinite then it is is perfectly elastic.