The value of PES reveals the degree to which the quantity supplied of a product responds to changes in price. The calculation of PES generally has two possible outcomes
If PES is greater than 1, supply is price elastic - that is, quantity supplied is responsive to changes in price. This is because the percentage change in quantity supplied is less than the percentage change in price
Second Outcome Of A Change In PES
If PES is less than 1, supply is price inelastic — that is, quantity supplied is relatively unresponsive to changes in price. This is because the percentage change in quantity supplied is less than the percentage change in price
Theoretical Possibilities Of PES
If the PES of a product is equal to 0, then supply is perfectly price inelastic — that is, a change in price has no impact on the quantity supplied.
If the PES of a product is equal to infinity (∞) then supply is perfectly price elastic — that is, the quantity supplied can change without any corresponding change in price
If the PES for a product is equal to 1 then supply has unitary price elasticity — that is, the percentage change in the quantity supplied matches the percentage change in price
1. How might different industries exhibit varying levels of price elasticity of supply, and what factors contribute to these differences?
2. In what ways can government policies impact the price elasticity of supply for essential commodities, and what could be the potential economic implications?
3. How can businesses utilize their understanding of price elasticity of supply to optimize production and pricing strategies in response to market changes?