1. Price Elasticity of Supply
You should be able to;
Define price elasticity of supply (PES), give the equation, explain the possible range of values, explain the determinants of PES, and show all of the above in diagrams

2. On your whiteboards… Go to the website www.fairtrade.org.uk
Find out 5 things this British organisation does to empower workers around the globe.

4. Price Elasticity of Supply
Price elasticity of supply measures the responsiveness of the quantity supplied of a good to a change in its price in a given time period
Formula for calculating elasticity of supply (Pes)
% change in quantity supplied divided by the % change in price
Normally as price rises - so does supply (as higher prices send the signal to producers of a rise in potential profits)
So price elasticity of supply (PeS) will have a positive co-efficient
We are mainly concerned with the ability of a business to alter supply to meet changes in market demand
Positive value for price elasticity of supply because supply rises as price increases

5. Price Elasticity of Supply - Measurement
ES =
% change in quantity supplied
% change in price
ES > 1 price-elastic supply
ES = 1 unit-elastic supply
ES < 1 price-inelastic supply
Es = 0 perfectly inelastic supply
Es = infinity perfectly elastic supply

6. What Determines Supply Elasticity?
Factor substitution possibilities
Can labour/capital be switched easily when there is a change in demand
When factor substitution is possible, supply will tend to be elastic
When factors are highly specialized, substitution may be harder
Spare production capacity available
When there is spare factor inputs available, businesses can expand output easily without pressure on costs to rise
Stocks (inventories) available to meet changes in demand
A low level of stocks makes supply relatively inelastic
When stocks can be off-loaded onto the market, supply is elastic
Time frame allowed for the supply to come to the market
Momentary period (fixed supply)
Short run (inelastic supply)
Long run (elastic supply)
Artificial limits on supply
E.g. the impact of patents that limit which firms can supply a product
Supply more elastic when there is spare capacity and a high level of unsold stocks

7. Would the producers of these products be responsive to changes in price? Explain your reasoning…1. 2.

8. Would the producers of these products be responsive to changes in price? Explain your reasoning…3. 4.
This company also makes staples,
drawing pins and tacks

9. The factory is working at full capacity!
Would the producers of these products be responsive to changes in price? Explain your reasoning…
The factory is working at full capacity! 5. 6.

10. Now let go back and think about the PED of these products in Malaysia…
For each product, discuss the PED and draw a graph for each which shows your estimated slope of the supply and demand. Label the graph correctly.

11. Applying The Concept of Elasticity of Supply
Seats in a football stadium / theatre / cinema
Short run capacity of any stadium is more or less fixed
Long run – expansion of stadium capacity / development of a new ground
An increase in demand for fresh salmon
Time lags in the production process – fixed supply available to the market in momentary period (i.e. the daily catch)
Longer term; change in the number of vessels, length of time at sea
World supply of oil following a large rise in world demand
Variable amount of spare capacity among the major oil producers
Can oil stocks be put onto the market to meet the rise in demand?
Oil supply might be inelastic if current output is close to capacity
The supply of drugs required to treat Anthrax
Short term supply is dependent on stocks of product available
If stocks are low, supply cannot increase in the short term to meet demand
Debate over the use of patents and how this limits production in the long run
The supply of new housing
Planning permission + availability of land to develop + shortages of skilled labour
Time lags in the production process – new housing developments take months to complete