Price elasticity of supply = % change in quantity supplied / % change in price

If the quantity supplied of a good or service increases significantly in response to a small increase in price, then the supply is said to be elastic (i.e. responsive to price changes). PES > +1

If the quantity supplied only increases slightly in response to a large increase in price, then the supply is said to be inelastic (i.e. not very responsive to price changes). PES < +1

There are several factors that can affect the price elasticity of supply for a particular good or service:

1. The time frame: The longer the time frame in which a good or service can be produced, the more elastic the supply is likely to be. This is because producers have more time to adjust their production levels in response to changes in price.
2. The availability of raw materials and other inputs: If a good or service requires specialized or hard-to-obtain inputs, the supply may be less elastic.
3. The fixed costs of production: If a producer has high fixed costs (e.g. a factory that has already been built), they may be less willing to increase or decrease production in response to price changes.
4. The number of producers: If there are many producers of a good or service, the supply is likely to be more elastic, as each producer has a smaller share of the market and may be more willing to adjust production in response to price changes.
5. The degree of specialization: If a producer is highly specialized in the production of a particular good or service, they may be less able to adjust production levels in response to price changes.
6. The ease of storage: If a good can be easily stored, the supply may be more elastic, as producers can hold onto their inventory and release it onto the market when prices are higher.

Regenerate response