Price Elasticity of Supply (PES)
Is a measure of sensitivity to quantity supplied of a good or service to a change in the price of that good or service.
As the supply curve is upward sloping, the elasticity of supply will be always be positive.
If the elasticity is greater than 1 supply is elastic, if it is 1 exactly then it is unit elastic and if it is between 0 and 1 it is inelastic. If PES is inelastic then it means quantity supplied wont change regardless of any price increases. If PES is elastic then it means there will be a response in quantity supplied to a change in price.
The value of elasticity will depend on how willing and able firms are to increase their supply. This depends on the technology of the industry and whether firms have the spare capacity to readily increase supply. It may also depend on whether a firm expects the price change to be permanent or temporary. The more technology available and the more spare capacity would mean supply is elastic. If a firm expects a price change to be permanent supply would also be more elastic.
Page last updated on 20/10/13
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