PES

Summary and Exam Tips for PES

Price Elasticity of Supply (PES) is a subtopic of Microeconomics, which falls under the subject Economics in the IB DP curriculum. PES measures how responsive the quantity supplied of a good or service is to a change in its price. It is always positive due to the direct relationship between price and supply. The degrees of PES include perfectly inelastic ($|PES| = 0$), inelastic ($|PES| < 1$), unitary elastic ($|PES| = 1$), elastic ($|PES| > 1$), and perfectly elastic ($|PES| = \infty$). Key determinants of PES are production time, mobility of factors of production, unused capacity, ability to store, and the rate at which costs increase. Primary commodities generally have a lower PES compared to manufactured products due to factors like longer production times and limited storage capabilities. Understanding PES helps in analyzing how quickly producers can adjust supply in response to price changes, which is crucial for market dynamics.

Exam Tips

• Understand Key Concepts: Ensure you can define PES and explain its significance in microeconomics. Familiarize yourself with the degrees of PES and their implications.
• Master the Formula: Be comfortable with calculating PES using the formula $\text{PES} = \frac{\%\text{ change in quantity supplied}}{\%\text{ change in price}}$.
• Identify Determinants: Be able to discuss the determinants of PES, such as production time and mobility of factors, and how they affect supply elasticity.
• Compare Commodities: Understand why primary commodities typically have lower PES compared to manufactured goods, focusing on production time and storage capabilities.
• Use Real-World Examples: Practice explaining PES concepts using real-world examples, like the supply of rice or cinema tickets, to illustrate different degrees of elasticity.