PES Measures The Degree Of Responsive In The Change Of Supply By The Change In Price
Supply Is Said To Be Price Elastic If Producers Can Easily Increase Supply Without Any Delay If There Is A Increase In The Price, This Is Price Elastic.
This can help to give such firms a competitive advantage as they are able to respond to changes in price.
Supply is price inelastic if firms find it difficult to change production in a given time period due to a change in the market price
Calculating The PES
The PES Definition - PES is the response of change in quantity by the change in price
Formula of PES - PES = Change In Quantity Percentage / Change In Price Percentage
Example Of PES
If the market price of beans increases from $2 per kilo to $2.20 per kilo, causing quantity supplied to rise from 10,000 units to 10,500 units.
Ans - 10500-10000/ 10000 times 100 = 5%
Ans - 2.20-2 / 2 times 100 = 10%
Ans - 5%/10% = -0.5 %
Why do we take Percentages, can't we take numbers only?
Why do we Say Elastic?
Why do Supply or Price Change?
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In the given example for PES,
1.What does the following denote?
If the market price of beans increases from $2 per kilo to $2.20 per kilo, causing quantity supplied to rise from 10,000 units to 10,500 units.
Ans - 10500-10000/ 10000 times 100 = 5% ---What is this?
Ans - 2.20-2 / 2 times 100 = 10% ---What is this?
Ans - 5%/10% = -0.5 % ----What is this % and is it negative? If negative, what does it mean and if positive what does it mean?