Karthikeyan

Definition:PES measures how much the quantity supplied changes when the price changes.

Formula:

PES = % change in quantity supplied ÷ % change in price

Example:

• Price increases by 10%

• Supply increases by 20%

PES = 20 ÷ 10 = 2

Types of PES

• PES > 1 → Elastic supply (supply changes a lot)

• PES < 1 → Inelastic supply (supply changes a little)

• PES = 1 → Unit elastic supply (same change)

Factors Affecting PES

• Time available to produce more goods

• Spare capacity in the business

• Amount of stock available