PES
% change in Qs ÷ % change in P.
Price elasticity of supply
Key definitions
Elasticity
Measure of responsiveness.
Perfectly inelastic supply
PES = 0 — fixed quantity.
Inelastic supply
PES 0 to +1 — steep S curve.
Unit elastic supply
PES = +1.
Elastic supply
PES > +1 — shallow S curve.
Spare capacity
Firms below max output can respond quickly.
Barriers to entry
Reduce elastic supply in long run.
Sunk costs
Costs not recovered on exit — affect firm decisions.
Short run
At least one factor fixed.
Long run
All factors variable — supply more elastic.
Storage
Easier storage allows more elastic supply.
Key concepts
Concert tickets often inelastic supply — fixed capacity.
In long run firms can enter/exit making supply more elastic.
Length of production process and raw material scarcity affect PES.
Relevant tips
- Link SR inelastic / LR elastic supply to diagram analysis.