Price Elasticity of Supply

Price elasticity of supply measures the responsiveness of quantity supplied to a change in price
Annotations:
- It is necessary for a firm to know how quickly, and effectively, it can respond to changing market conditions, especially to price changes.
1. It is necessary for a firm to know how quickly, and effectively, it can respond to changing market conditions, especially to price changes.
Equation
1. % change in quantity supplied/ % change in price
Perfect elasticity, where supply is infinite at any one price.
1. Graph is horizontal
Perfect inelasticity, where only one quantity can be supplied
1. Graph is vertical
Unit elasticity, linear supply curve
Determinants
1. 1. Are resource inputs readily available
2. 2. Are factors mobile
3. 3.Can products be easily stored
4. 4. Is production running at full capacity.
5. 5. How long and complex is the production cycle
A high PES is desirable for a firm, as it makes them more responsive to a change in price, therefore more competitive.
1. Improving PES
  1. Create spare capacity
  2. Latest tech
  3. sufficient stocks
  4. Better storage
  5. Flexible Labour
<1 = Inelastic. >1 = Elatic

Resource summary

	Created by harrysimmons4 almost 11 years ago