PRICE ELASTICITY OF SUPPLY

Price elasticity of supply is a numerical measure of the responsiveness of the supply to a change in the price of the product alone. The supply could be that of a firm or group of firms; it could of course refer of the supply of the overall industry. It is expressed as

PES = % change in quantity supply

% change in price

Since the relationship between the price and quantity supplied is normally a direct one, the PES will tend to take on a positive value. If the numerical value of PES is greater than 1 , then the supply is relatively price elastic that is supply is responsive. If the numerical value of PES is less than 1, supply then is relatively price inelastic that is unresponsive.

FIG 6 shows five supply curves each with different PEs values.

price

Quantity supply

Supply curve % change %change = PES description

In quantity supplied in price

A 0% /10% decrease= 0 perfectly inelastic

B 6% decrease /10% decrease= +0.6 relatively inelastic

C 10% decrease /10% decrease= + 0.1 unitary elastic

D 20% decrease / 10% decrease = +0.2 relatively elastic

E firms are not prepared to any at a price below $10 but will supply as much as they can at $10 (or above) =+00 perfectly elastic

FACTORS INFLUENCING PES

If firms and industries are more flexible in the way they behave, then supply tends to be more elastic .the main influences on PES are:

• The ease with which firms