The document discusses price elasticity of supply. It defines price elasticity of supply as a measure of how responsive the quantity supplied of a good is to changes in its price. It provides examples of goods with elastic supply, like fidget spinners, and inelastic supply, like nuclear reactors. Factors that influence whether supply is elastic or inelastic include availability of raw materials, complexity of production, mobility of factors of production, and time needed to respond. Supply is typically more elastic in the long run than short run as producers have more time to adjust their operations.

1. Price Elasticity of Supply
Tale of content
1.Definition
2.Mobility of factors
3.Time to respond
4.Inventories
5.Price elasticity
6.Inelastic
7.Supply could be inelastic
8.Following
9.Example
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responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its
price or cost. The elasticity is represented in numerical form, and is defined as the
percentage change in the quantity supplied divided by the percentage change in price.
When the coefficient is less than one, the said good can be described as inelastic; when the
coefficient is greater than one, the supply can be described as elastic. An elasticity of zero
indicates that quantity supplied does not respond to a price change: it is "fixed" in supply.
Such goods often have no labor component or are not produced, limiting the short run
prospects of expansion. If the coefficient is exactly one, the good is said to be unitary
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10. Elastic supply
11. Example 2
12. Calculating
13. Factors
14. Short & long terms
Price elasticity of supply (PES or Es) is a measure used in economics to show the

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elastic. The quantity of goods supplied can, in the short term, be different from the amount
produced, as manufacturers will have stocks which they can build up or run down.
Determinants Availability of raw materials for example, availability may cap the amount
of gold that can be produced in a country regardless of price. Likewise, the price of Van
Gogh paintings is unlikely to affect their supply. Length and complexity of production
Much depends on the complexity of the production process. Textile production is relatively
simple. The labor is largely unskilled and production facilities are little more than buildings
– no special structures are needed. Thus, the PES for textiles is elastic. On the other hand,
the PES for specific types of motor vehicles is relatively inelastic. Auto manufacture is a
multi-stage process that requires specialized equipment, skilled labor, a large supplier’s
network and large R&D costs. Mobility of factors If the factors of production are easily
available and if a producer producing one good can switch their resources and put it
towards the creation of a product in demand, then it can be said that the PES is relatively
elastic. The inverse applies to this, to make it relatively inelastic.
Availability of raw materials
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For example, availability may cap the amount of gold that can be produced in a country
regardless of price. Likewise, the price of Van Gogh paintings is unlikely to affect their
supply.
Length and complexity of production
Much depends on the complexity of the production process. Textile production is relatively
simple. The labour is largely unskilled and production facilities are little more than
buildings – no special structures are needed. Thus, the PES for textiles is elastic.
Mobility of factors
If the factors of production are easily available and if a producer producing one good can
switch their resources and put it towards the creation of a product in demand, then it can
be said that the PES is relatively elastic. The inverse applies to this, to make it relatively
inelastic.
Time to respond
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The more time a producer has to respond to price changes the more elastic the
supply. Supply is normally more elastic in the long run than in the short run for produced
goods, since it is generally assumed that in the long run all factors of production can be
utilized to increase supply, whereas in the short run only labor can be increased, and even
then, changes may be prohibitively costly. For example, a cotton farmer cannot
immediately (i.e. in the short run) respond to an increase in the price of soybeans because
of the time it would take to procure the necessary land.
Inventories
A producer who has a supply of goods or available storage capacity can quickly increase
supply to market.
Spare or excess production capacity
A producer who has unused capacity can (and will) quickly respond to price changes in his
market assuming that variable factors are readily available. The existence of spare capacity
within a firm, would be indicative of more proportionate response in quantity supplied to

6. changes in price (hence suggesting price elasticity). It indicates that the producer would be
able to utilize spare factor markets (factors of production) at its disposal and hence respond
to changes in demand to match with supply. The greater the extent of spare production
capacity, the quicker suppliers can respond to price changes and hence the more price
elastic the good/service would be.
Price Elasticity of Supply
Price elasticity of supply measures the responsiveness of quantity supplied to a change in
price.
The price elasticity of supply (PES) is measured by % change in Q.S divided by % change
in price.
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 If the price of a cappuccino increases by 10%, and the supply increases by 20%. We
say the PES is 2.0.
 If the price of bananas falls 12% and the quantity supplied falls 2%. We say the PES =
2/12 = 0.16
 Inelastic supply – a change in price causes a smaller proportional change in quantity
supply
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 Elastic supply – a change in price causes a bigger proportional change in supply
Inelastic supply
This means that an increase in price leads to a smaller % change in supply. Therefore PES
<1
In this case the PES =
 % change in Q.S. = (64-60)/60 = 0.06666
 % change in price = (106-80)/80 = 0.325
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Supply could be inelastic for the following reasons
 Firms operating close to full capacity.
 Firms have low levels of stocks, therefore there are no surplus goods to sell.
 In the short term, capital is fixed in the short run e.g. firms do not have time to build a
bigger factory.
 If it is difficult to employ factors of production, e.g. if highly skilled labor is needed
 With agricultural products, supply is inelastic in the short run, because it takes at least
six months to grow new crops. In September the farmer cannot suddenly produce more
potatoes if the price goes up.
Examples of goods with inelastic supply
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 PES = 0.2
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 Nuclear reactors – It takes considerable time and expertise to build a new reactor. If
there is high demand, few firms would be able to increase output in quick time
 Grapes – Harvest is once a year, so in short-term, supply would be very inelastic.
 Flood defenses – If there is heavy rainfall and flooding, there would be high demand
for flood defenses. But, to supply barriers against the floods cannot occur overnight. It
will take many months of construction to build.
 During an economic boom when demand for the goods is very high and firm is running
out.
Elastic supply
This occurs when an increase in price leads to a bigger % increase in supply, therefore PES
>1

11.  PES
 % change in Q.S. = 110-60/60 = 0.8333
 % change in Price = 106-80/80 = 0.325
 PES = 2.56
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Supply could be elastic for the following reasons
 If there is spare capacity in the factory.
 If there are stocks available.
 In the long run, supply will be more elastic because capital can be varied.
 If it is easy to employ more factors of production.
 If a product can be sold from the internet which increases the scope of international
competition and increases options for supply.
Examples of goods with elastic supply
 Fidget spinners. These goods are relatively easy to make, requiring only basic raw
materials of plastic. Many manufacturing firms could easily adapt production to
increase supply.
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 Taxi services. It is relatively easy for people to work as a taxi driver. People can work
part-time and only need a qualified driving license. With mobile apps like Uber, it has
also become easier to fit consumers with a broader range of options. If price rises, Uber
can offer higher wages and encourage more people to come out to work. There are still
some supply constraints on very popular days. But, mostly, supply is quite elastic.
 During recession and excess supply. In a recession with a fall in demand, the firm will
have unsold goods and a large stock.
Elasticity
The elasticity of a good provides a measure of how sensitive one variable is to changes in
another variable. In this case, the price elasticity of supply determines how sensitive the
quantity supplied is to the price of the good.
Calculating the PES

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When calculating the price elasticity of supply, economists determine whether the quantity
supplied of a good is elastic or inelastic. The percentage of change in supply is divided by
the percentage of change in price. The results are analyzed using the following range of
values:
 PES > 1: Supply is elastic.
 PES < 1: Supply is inelastic.
 PES = 0: Supply is perfectly inelastic. There is no change in quantity if prices change.
 PES = infinity: Supply is perfectly elastic. A decrease in prices will lead to zero units
produced.
Factors that Influence the PES
There are numerous factors that impact the price elasticity of supply including the number
of producers, spare capacity, ease of switching, ease of storage, length of production
period, time period of training, factor mobility, and how costs react.
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15. The price elasticity of supply is calculated and can be graphed on a demand curve to
illustrate the relationship between the supply and price of the good.
Supply and Demand Curves: A demand curve is used to graph the impact that a change
in price has on the supply and demand of a good.
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Short run and long run
Since firms typically have a limited capacity for production, the elasticity of supply tends
to be high at low levels of quantity supplied and low at high levels of quantity supplied. At
low levels of quantity supplied, firms typically have substantial capacity available for use,
so small increases in price make it profitable for firms to begin to use this idle capacity.
Thus, the responsiveness of quantity supplied to changes in price is high in this region of
the supply curve. However, as capacity becomes fully utilized, increasing production
requires additional investment in capital (for example, plant and equipment). Since the
price must rise substantially to cover this additional expense, supply becomes less elastic
at high levels of output.
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