2.6 Elasticity of supply

Objective notes

3 learning objectives

2.6.1Price elasticity of supply

• PES equals percentage change in quantity supplied divided by percentage change in price

• PES has a theoretical range of values and indicates responsiveness of supply to price

• Calculation: PES, change in price, or quantity supplied from data

2.6.2PES determinants and diagrams

• PES depends on time, factor mobility, unused capacity, ability to store, and rate of cost increases

• Diagram: relatively elastic and relatively inelastic supply

• Diagram: perfectly elastic, perfectly inelastic, and unitary PES along a supply curve

2.6.3(HL)—PES for primary commodities

• Primary commodities generally have lower PES than manufactured products

• Biological, seasonal, capacity, and storage constraints can limit responsiveness