AS Micro Multiple Choice: Price Elasticity of Supply
- AQA, Edexcel
Last updated 22 Mar 2021
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
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