Determinants of Price Elasticity of Supply
A numeric value that measures the elasticity of a good when the price changes.
-availability of materials - The limited availability of raw materials could limit the amount of a product that can be produced.
-length and complexity of product - If the product is complex to manufacture, it becomes more inelastic.
-time to respond - If the producer has more time to respond to price changes, the product is more elastic.
-excess capacity - A producer with unused capacity will quickly respond to price changes
-inventories - A producer with a large number of products can quickly increase the amount of supply it delivers to the market. -The number of substitutes - This determines how easily one person could switch from one product to another and determines how elastic or inelastic a good is.
Percentage change in quantity supplied divided by the percentage change in price
- When PES > 1, then supply is price elastic
- When PES < 1, then supply is price inelastic
- When PES = 1, means the good has unit elasticity
- When PES = 0, supply is perfectly inelastic
- When PES = infinity, supply is perfectly elastic following a change in demand