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AS Micro Multiple Choice: Price Elasticity of Supply

AQA, Edexcel

The price elasticity of supply for most goods and services is positive

This means that when there is an increase (outward shift) in demand for a product, we see an expansion along and up the supply curve for a producer. Higher demand provides an incentive to sell more and increase revenues and profits.

Supply will be elastic when PES > 1 i.e. a 15% increase in price brings about a 30% expansion of supply.

The diagram below shows two supply curves - one is price inelastic, the other is price elastic.

When supply cannot respond to a price/demand change, the supply curve is drawn as vertical and PES = 0

When supply can respond to any change in demand without a change in market price, the supply curve is drawn as horizontal and PES = infinity

Click the tags below for more revision resources on price elasticity of supply

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