6. Elasticity of Supply

How to tell if a supply curve is inelastic, elastic or unit jut by looking at the graph?

(Any straight line curve that passes through the origin has a PES of 1) (Any straight line curve starting from x-axis is inelastic) (Any straight line curve starting from y-axis is elastic)

What happens if PES = 0? Is it possible?

A change in the price of a product will have no effect on the quantity supplied at all. (Refer to figure 6.1 in pg 93) = (a completely vertical) perfectly inelastic supply curve. This may be possible in the very short run because it is impossible for firms to increase their supply straight away. Another example are stadiums. If the Spurs stadium has 100,000 seats, the change in price won't affect the quantity supplied at all.

What is price elasticity of supply?

A measure of how much the supply of a product changes when there is a change in the price of a product. The responsiveness of supply towards a change in price.

What happens if the PES value is infinity? (Need help to explain wheat commodity example)

Even the smallest change in price means the supply becomes 0. The supply curve goes on forever at the price P and so quantity supplied is infinite. (Refer to figure 6.2 in pg 94) = (completely vertical supply curve) = perfectly elastic Wheat available to a country is infinite example?

What are the determinants of price elasticity of supply?

Mobility/flexibility and costs of factors of production Time period considered Unused capacity Ability to store stock

Why is the "ability to store stock" a determinant of price elasticity of supply?

Non-perishable goods are usually more elastic than perishable goods. (Because only non-perishable goods can be stored). If a firm is able to store high levels of stock (inventories) of their product, they will be able to react to price increases by releasing the stock to the market swiftly.

What is the equation for PES?

PES = %∆Quantity supplied/%∆Price

What do the PES values for normal products signify? * (KOGNITY SAYS "LESS THAN PROPORTIONATE" AND "PROPORTIONATELY SMALLER" IS SAME. THEN EDIT ACCORDINGLY

PES is between 0-1 : this is inelastic supply, a change in price of the product leads to a less than proportionate change in the quantity supplied. PES is between 1 to infinity: this is elastic supply, a change in price of the product leads to a greater than proportionate change in the quantity supplied. PES is 1: A change in product leads to a proportionate change in the quantity supplied of it.

Why is "mobility and cost of factors of production" a determinant of price elasticity of supply?

The greater the mobility and lower cost the of factors of production, the more elastic the supply will be. Even if the price of a good increase, the firm may not be able to easily move/adapt resources to increase production of that good in response to price rise. This may be because the resources are large/immobile or costly (increasing risks). For example: services like housekeeping/gardening have higher PES than primary commodities/heavy industrial goods. Resources needed for the mentioned services are not as specialized and less costly than those for oil/minerals/high tech products. So it is easier for firms in to the mentioned service industries to hire additional workers (or reduce working hours) according to demand. Example 2: easy to shift production from manufacturing 1 liter bottles to 2 liter bottles as the extra cost won't be great and so easy to increase quantity of 2 liter bottles supplied.

Why is "unused capacity" a determinant of price elasticity of supply?

The greater the spare (unused) capacity, the more elastic the supply will be. When firms are not using production resources at full capacity (eg workers not working full-time or unused space in factories). As a response to increase in price, Production output of product can be easily increased without significant costs. Quite elastic. However, if firm is working at maximum capacity, it will be difficult and costly to respond to a price increase. (Eg. To increase a factory's output by just one more unit could require a whole new factory, which is very costly + time-consuming). Very inelastic

Why is "time period" a determinant of price elasticity of supply?

The longer the time period considered, the more elastic the supply will be. When there is a change in the price of a good, in the very short run (very immediate moment), firms will be unable to vary the level of supply that much because they cannot increase/decrease the factors of production instantly. Example: Coca-cola already planned their production of drinks for October and there is sudden heatwave, so demand for coke increase, so prices increase. But the quantity of coke supplied won't likely change much. If given a bit more time, like the short term or medium term, firms may be able to increase the quantity of some factors of production (like labour/raw materials). But if given longer, may be able to change factory size or machinery.

What is the range of values of price elasticity of supply?

Usually From 0 to infinity

Question : REFORMAT SO PES AND PED LOOK SAME ON QUIZLET. CAN THEY?

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