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Price Elasticity Of Supply

Price Elasticity Of Supply, is the measure of the responsiveness of supply to a change in price.

The Formula used to calculate Price Elasticity Of Supply is:

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Q1 = Old Quantity

Q2 = New Quantity

P1 = Old Price

P2 = New Price

 

If the answer using the above formula is less than 1 than the product has price inelastic supply

however, if the answer is greater than 1 than the product has price elastic supply.

 

Price Elastic Supply:  When supply changes by a greater percentage than the change in price.

Price In Elastic Supply: When supply changes by a smaller percentage than the change in price.

 

 

Types OF Price Elasticity Of Supply:

Types Of Price Elassticity Of Supply

Price Elasticity Of Supply

 

Factors Affecting Price Elasticity Of Supply:

Gestation Period:

Gestation period is the time period needed in which goods and services can be produced.

Longer gestation period(e.g. wheat)      Inelastic PES

Shorter gestation period(e.g. bread)       Elastic PES

Nature of The Product:

Perishable (can’t be stored for a longer period)      Inelastic PES

Durable (can be stored for a longer period)            Elastic PES

Availability of Raw Materials:

Not easily available (wood for wooden furniture)         Inelastic PES

Easily available (plastic for plastic furniture)                Elastic PES

Labour:

Easily available                          Inelastic PES

Not easily available                  Elastic PES

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