Price Elasticity of Supply (PES)

What is Price elasticity of supply?

• Price elasticity of supply (PES) is a measure of the responsiveness of quantity supplied to a change in price. 
• The following equation is used to calculate the PES: 

PES = %change in quantity supplied/%change in price.

What value ranges of PES:

• PES = 0: Perfectly inelastic, any changes in price do not change the quantity supplied.
• PES = 1: Unit elastic, percentage changes in price result in a proportionally equal percentage change in the quantity supplied.
• PES = ∞: Perfectly elastic, a change in price results in an infinitely large change in the quantity supplied.
• 0 < PES < 1: Inelastic supply, a change in price results in a proportionally smaller change in quantity supplied.
• PES > 1: Elastic supply, a change in price results in a proportionally larger change in quantity supplied. 
• NOTES:
• All the values of PES are positive (unlike PED).
• Values where PES = 0 or ∞ are completely theoretical and can't exist in real world.

Graphs for the above cases:

Factors affecting PES:

•  The availability of resources (resource inputs)
• Mobility of the factors of production
• Time required for the production process
• Current production levels and production capacity
• Durability and the ease of storage

Back to basics part 4 : YED & XED

What is income elasticity of demand (YED) ? 

• YED is a measure of how much the demand for a product changes when there is a change in the consumer's income

The value range of YED:

• YED (+) = normal good
• YED (-) = inferior good
• 0 < YED > 1 = income inelastic - change in income results in a more than proportionate change in quantity demanded
• YED > 1 = income elastic - change in income results in a less than proportionate changed in quantity demanded

YED can be illustrated on a diagram called the 'Engel Curve' :

What is cross elasticity of demand (XED) ?

• XED is a measure of how much demand for a product changes when there is a change in price of another product

The value range of XED:

• XED (+) = products are substitutes
• XED (-) = products are complements