A2.02.08: PES

Question 1

Define PES

Answer 1

The responsiveness of the supply of a product following changes in price

Question 2

Formula for PES?

Answer 2

• % change in quantity supplied / % change in price
• PES is always NEGATIVE due to the Law of Supply
  (Supper over plate)

Question 3

PES = 0?

Answer 3

Perfectly inelastic (changes in price have no effect on quantity supplied)

• This can be seen in the short run as firms can’t increase supply straight away (Stadium seat tickets for example as there are a fixed amount)

Question 4

PES = infinity?

Answer 4

Perfectly elastic (supply is infinite, consumers can have any quantity after paying the current world market price
- For example, international trade

Question 5

PES < 1?

Answer 5

Relative price inelastic supply (There’s a less proportionate change in quantity supplied following changes in price)

Question 6

PES > 1?

Answer 6

Relatively price elastic supply (There’s a greater than proportionate change in quantity supplied following changes in price)

Question 7

PES = 1?

Answer 7

Unitary price elastic supply (There’s a proportionate change in quantity supplied following changes in price)