Price Elasticity Of Supply - PES

Price elasticity of supply measures the responsiveness to the supply of a good or service after a change in its market price. According to basic economic theory, the supply of a good will increase when its price rises. Conversely, the supply of a good will decrease when its price decreases.

1. PRICE ELASTICITY
OF SUPPLY
Mudassir Raza

2. Definition of PES
Calculation of PES
Determinants of PES
Implications of PES for decision making
Learning
Objectives

3. Price Elasticity of Supply
A measure of the responsiveness of the quantity supplied to a change in
price.

4. Calculating
PES

5. Calculating
PES
Percentage change in quantity supplied:
Change in quantity supplied ✕100
Original quantity supplied
Percentage change in price:
Change in price ✕100
Original price

6. Calculating
PES
Example:
a) The quantity supplied may rise from 100 to 130 as a
result of price increasing from $10 to $12.
b) A fall in price from $5 to $4 causes supply to contract
from 10000 to 4000.
Interpretation of PES
A PES of 1.5 means that a 1% rise in price will cause a 1.5%
extension in supply

7. Elastic Supply
When the quantity supplied
changes by a greater percentage
than the change in price

8. Inelastic Supply
When the quantity supplied
changes by a smaller percentage
than the change in price

9. Determinants of
Price Elasticity of
Supply
The availability of stock of finished goods
and components.
Degree of unused or spare production
capacity
Time period required to adjust the scale
of production

11. Unit PES
When a change in price causes an equal
percentage change in the quantity
supplied.
Unit Elastic Supply has a PES of 1, where
quantity supplied change by the same
percentage as the price change.

12. IMPLICATIONS OF PES FOR DECISION MAKING

14. YOU
THANK