(f) Define the term PES Price Elasticity of Supply.
PES – responsiveness of supply (Qs) to a change in price.
(g) Apart from time, explain 2 factors, which influence the price elasticity of supply.
Excess Capacity: Whether the firm has excess (or unused, or spare) capacity available: if it does, then increasing output will be easier so supply will be more price elastic.
Possibility of Storage: the greater the ability to store stocks, the more price elastic supply will be as firms can draw from stocks to increase the quantity supplied.
Mobility of Factors of Production: the easier it is for a producer to switch resources from one use to another, the easier it will be to increase the quantity supplied in response to an increase in the price of the product, so supply will be more elastic. (Ease of technology can be implemented/applied could be an example of this)
Rate at which Costs rise as Output Increases: the higher/faster the rate, the lower the PES.
Nature of the Product: like agricultural products, the time lag between planting and harvest is relatively long, so supply would be relatively price inelastic in the short term.
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