Definition and Equation
PES is a measure of responsiveness of quantity supplied to a %change in price of the good
PES= %change in qs/%change in price
Values
PES=0 perfectly inelastic, supply curve is vertically straight, will not change even if price changes. Seats in a theatre
PES=0-1, relatively inelastic, supply curve is steep, qs changes less proportionately than price, primary goods
PES=1, unitary elasticity, supply curve is a 45°, qs changes proportionate to price
PES=1-♾️, relatively elastic, supply curve is flatter, qs changes more proportionately than price, manufactured goods
PES=♾️, perfectly elastic, supply curve is horizontally straight, QS falls to 0 at any other price, no example
Factors
Barriers to entry; If an industry requires many resources or economies of scale for a firm to be successful in it, the number of new firms that will be able to enter the market will be lower, hence pes will reduce as number of suppliers is less. PES becomes inelastic, vice versa
Resource mobility; the ability for producers to reallocate resources, the quicker they can do it the more elastic the pes is.
Inventory; if products have a long shelf life/ can be stored easily then pes is elastic as suppliers can quickly react to price changes by increasing supply. Vice versa
Spare capacity; if producers are working at maximum capacity then pes is inelastic as suppliers will not be able to react quickly to the price changes/adjust supplies.
Time period; time taken to produce it, in the short run pes will be inelastic as suppliers wont be produce as much, but pes is elastic in the long run as they can adjust their factors of production to produce more
Primary vs Manufactured Goods
| PES is inelastic generally | PES is elastic generally |
| Mobility: Farmers won’t be able to switch from production of one crop to another quickly | Mobility: Resources are much more interchangeable between products than for primary goods |
| Barriers to entry: In most countries, barriers to entry will be high due to capital requirements and land requirements | Barriers to entry: Can not be generalised but there are lesser barriers on average than for primary goods |
| Inventory: some crops cannot be stored for long times | Inventory: Most manufactured goods can be stored for very long periods of time |
| Spare capacity: labour intensive production hence production capacity is limited | Spare capacity: Capital intensive production so more product can be produced. |
| Time period: takes very long to produce | Time period: Can be produced relatively quickly on average |
