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Summary Price elasticity of supply (PES)
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A summary of PES (price elasticity of supply)
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17/11/21Price Elasticity of Supply (PES)
Key terms
- Price elasticity of demand (PED)
The responsiveness of quantity demanded to a change in price
- Income elasticity of demand (YED)
The responsiveness of quantity demanded to a change in income
- Cross elasticity of demand (XED)
The responsiveness of quantity demanded of one good to the change in the price of another good
- Price elasticity of supply (PES)
The responsiveness of quantity supplied to a change in price
Recap task
- PED measures the responsiveness of the quantity demanded to a change in price
- % change in quantity supplied/ % change in price
- It will always be a negative value because of the inverse relationship between quantity demanded and price
- Inelastic = 0 to -1, elastic is -1 to -infinity
- That the quantity demanded does not change much when there is a change price
Recap task 2
- The responsiveness of quantity supplied to a change in price
- % change in quantity supplied/ % change in price
- There is a positive relationship between the quantity demanded and price
- There is a smaller proportional change in quantity supplied when there is a change in price
- It would be a vertical line/steep line
- Inelastic = 0 to 1, elastic = 1 to infinity
PES
- Price elasticity of supply measures the responsiveness of the quantity of supplied of a good to a change in its
price in a given time period, assuming all other things stay the same (ceteris paribus)
This measures the gradient of the supply curve
- Formula for PES:
% change∈quantity supplied
PES=
% change∈ price
- As price rises, so does supply
- Higher prices mean a rise in potential profits
- Therefore, price elasticity of supply will have a positive value
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