Price elasticity of supply (PES) measures the relationship between change in quantity supplied and a change in price.
If supply is elastic, producers can increase output without a rise in cost or a time delay
If supply is inelastic, firms find it hard to change production in a given time period.
Percentage change in quantity supplied divided by the percentage change in price
When PES > 1, then supply is price elastic
When PES < 1, then supply is price inelastic
When PES = 0, supply is perfectly inelastic
When PES = infinity, supply is perfectly elastic
What factors affect the elasticity of supply?
Factor substitution possibilities: When factor substitution is possible and can be achieved at a low cost, supply will be elastic. When factors are specialized, substitution may be harder and thus will be inelastic.
Spare production capacity: If there is plenty of spare capacity then a business can increase output without a rise in costs and supply will be elastic in response to a change in demand. The supply of goods and services is most elastic during a recession, when there is plenty of spare labour and capital resources.
Stocks of finished products and components: If stocks of raw materials and finished products are at a high level then a firm is able to respond to a change in demand - supply will be elastic. Conversely when stocks are low, dwindling supplies force prices higher because of scarcity in the market.
Time period and production speed: Supply is more price elastic the longer the time period that a firm is allowed to adjust its production
Related Documents: price elasticity of supply Essay
Associate Level Material Appendix B Price Elasticity and Supply & Demand Fill in the matrix below and describe how changes in price or quantity of the goods and services affect either supply or demand and the equilibrium price. Use the graphs from your book and the Tomlinson video tutorials as a tool to help you answer questions about the changes in price and quantity |Event |Market affected by event |Shift in supply, demand, or both. |Change in…
'unit elasticity' Demand or supply with a price elasticity coefficient that is equal to one. 3. 'cross elasticity of demand' The ratio of the percentage change in quantity demanded of one good to the percentage change in price of some other good. 4. 'producer surplus' The difference between the actual price producers receive for a product and the minimum acceptable price 5. 'midpoint formula' A method for calculating price elasticity of demand or price elasticity of supply that averages…
of economic behavior in industries and consumers. Some of the concepts that microeconomics focuses on are market prices and how the supply and demand curve initiates change. Microeconomics also examines mergers and price elasticity which are vital notions important to microeconomic excellence. As decisions are made through microeconomics, both firms and individuals analyze the prices of products and services motivated by demand costs and benefit considerations in a portion of the economy instead…
Coffee Supply, Demand, and Price Elasticity Team B: Walelia Naholowa’a, Priscilla Swanson, Delniece Williams, Nigel Sturge ECO/212 Robert Coates February 26, 2012 Coffee Supply, Demand, and Price of Elasticity Statistics show that over half of the American population consumes coffee on a daily basis. You may drink coffee hot, cold, mixed, or even in a frappuccino. Individuals are able to make coffee at home, or buy it on the go. Coffee provides people with caffeine, which ultimately…
Econ 1000C: Intro to Economics 9/19/13 Lecture #5 Elasticity and its applications Elasticity Basic idea: Elasticity measures how much one variable. Definition: Elasticity is a numerical measure of the responsiveness of Qd or Qs to one of its determinants. Price of elasticity of demand Price of elasticity of demand measures how much Qd responds to change in P Price of elasticity of demand = % change in Qd / % Change in P Calculating Percentage Changes Standard…
It will talk about how the pricing setting and decision making throughout demand and supply curve, is the elasticity of quantity demanded and supplied elastic or inelastic. Furthermore, this report will indicate the importance of understanding of GDP rate, the inflation rate and unemployment rate. Also, how to managing the recession of the airline industry. Throughout it report, it is easy to be seen the elasticity of quantity demanded and supplied, this information can help industry and government…
A good's Demand Curve is: Qd = 25 - P, and its Supply Curve is: Qs = 10 + 2P. a. When P = $20, what is the difference, if any, between Qd and Qs? b. When P = $3, what is the difference, if any, between Qd and Qs? c. What are the equilibrium values of P and Q? Answer: a. Qd = 5 and Qs = 50 b. Qd = 22 and Qs = 16 c. Q = 20 and P = $5 10) List the major non-price determinants of demand. Answer: Consumer preferences (tastes), income, prices of related goods (complements and…
outreach@studentsofferingsupport.ca to see if there is a trip that can work! JOIN US TODAY! AGENDA 1. 2. 3. 4. 5. 6. Ten principles of Economics Thinking like an Economist Interdependence and the gains from trade The market forces of Supply and Demand Elasticity and its application Supply, Demand, and Government policies – Answer any questions – A few examples – Leave you with the package 6 Chapter 1 Ten Principles of Economics 7 How people make decisions 1. People face tradeoffs – Going to fox on…
Supply & Demand The demand for housing is a function of income, price, demographics and the real cost of capital. Supply is determined by the profitability of building dwellings. Supply in the LR is a function of the amount people can borrow and a cost variable The market price allows the quantity supplied to equal the quantity demanded, referred to as Equilibrium (E). Supply equals demand for a price. Generalising from this simple relationship to an entire economy, aggregate supply (AS)…