Price Elasticity of Supply

Elasticity! Post 4

In microeconomics a topic I struggle with is Elasticity. So this is a series of posts to consolidate my understanding.

There are 4 types to know about for AS.

Price Elasticity of Supply (PES)
The fourth type is price elasticity of supply, which measures the percentage change in quantity supplied after a change in price.

It is measured by the following formula

Price Elasticity of Supply (PES) = %Change in Quantity Supplied/ %Change in Price

Inelastic supply means a change in price will cause a smaller percentage change in supply therefore the PES<1.
Perfectly inelastic means a change in price has no effect on supply.
Supply could be inelastic due to a company operating close to full capacity, as it may be difficult to increase supply. Low levels of stock meaningSuply may be inelastic in the short  there are no surplus goods to sell. In the short term capital is fixed meaning firs cannot build a bigger factory and increase supply. It may be difficult to imply factors of production and find relatively skilled labour to increase output. Supply may be inelastic in the short run as it may take a long time to grow crops.

Elastic supply occurs when an increase in price leads to a bigger percentage increase in supply. therefore the PES>1
Perfectly elastic supply means that at a given price, supply is unlimited.
Supply could be elastic because, there may be space capacity in a factor, there may be abundant stock available or it many be easy to employ more factors of production.

In the short run supply is more likely to be inelastic because a firm cannot increase the size of their factory.
In the long run supply can be more elastic as the firm will be able to invest in more capacity and increase supply.