 | This article is missing information about history, and effects. (November 2017) |
The price elasticity of supply (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price. Price elasticity of supply, in application, is the percentage change of the quantity supplied resulting from a 1% change in price. Alternatively, PES is the percentage change in the quantity supplied divided by the percentage change in price.
When PES is less than one, the supply of the good can be described as inelastic. When price elasticity of supply is greater than one, the supply can be described as elastic.[1] An elasticity of zero indicates that quantity supplied does not respond to a price change: the good is "fixed" in supply. Such goods often have no labor component or are not produced, limiting the short run prospects of expansion. If the elasticity is exactly one, the good is said to be unit-elastic. Differing from price elasticity of demand, price elasticities of supply are generally positive numbers because an increase in the price of a good motivates producers to produce more, as relative marginal revenue increases.[2]
The quantity of goods supplied can, in the short term, be different from the amount produced, as manufacturers will have stocks which they can build up or run down.
- ^ Png, Ivan (1999). pp. 129–32.
- ^ Nechyba, Thomas J. (2017). Microeconomics: An Intuitive Approach with Calculus (2nd Edition) (2nd ed.). Boston, MA: CENGAGE Learning. pp. 634–641. ISBN 9781305650466.