Study Notes
Price elasticity of supply (PES) measures how much the quantity supplied of a product responds to changes in its price. PES can be categorized into different types such as price elastic supply, price inelastic supply, perfectly price inelastic supply, infinitely price elastic supply, and unitary price elastic supply.
- Price Elastic Supply — When supply can quickly adjust to price changes. Example: Juice at a restaurant can be supplied quickly.
- Price Inelastic Supply — When supply cannot quickly adjust to price changes. Example: Cars take longer to produce and adjust to price changes.
- Perfectly Price Inelastic Supply — Supply does not change regardless of price changes. Example: A fixed number of concert tickets.
- Infinitely Price Elastic Supply — Supply can meet any demand at a particular price. Example: Digital products with no production limits.
- Unitary Price Elastic Supply — Percentage change in supply equals percentage change in price. Example: A product where supply changes proportionally with price.
Exam Tips
Key Definitions to Remember
- Price Elasticity of Supply (PES)
- Price Elastic Supply
- Price Inelastic Supply
- Perfectly Price Inelastic Supply
- Infinitely Price Elastic Supply
- Unitary Price Elastic Supply
Common Confusions
- Confusing PES with price elasticity of demand (PED)
- Misunderstanding the impact of time on PES
Typical Exam Questions
- What is price elasticity of supply? It measures the responsiveness of quantity supplied to a change in price.
- How does time affect PES? The longer the time period, the more elastic the supply tends to be.
- What factors affect PES? Availability of resources, production time, and storage capabilities.
What Examiners Usually Test
- Understanding of different types of PES
- Ability to calculate PES
- Factors influencing PES and their significance