1. SECTION A: THE MARKET SYSTEM
Part 1 Demand and Supply
Chapter 8: Price elasticity of supply
Edexcel International GCSE Economics

2. Getting Started…
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 8: Price Elasticity of Supply

3. What is price elasticity of supply?
How the change in price affects the change in quantity supplied.
The responsiveness of supply to a change in price
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 8: Price Elasticity of Supply

4. PES = % change in quantity supplied % change in price
The value of PES
PES = % change in quantity supplied % change in price
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

5. Price Inelastic Supply
Product A
Price increases from £30 - £40 (33.3%)
Supply increases from 15 – 16 (6.66%)
Change in price results in a proportionately smaller change in supply
WHAT IS THE PES in this example?
6.66/33.3 = 0.2
Less than 1 = Inelastic
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 8: Price Elasticity of Supply

6. Price Elastic Supply Product B Price increases from £27 - £30 (11%)
Supply increases from (60%)
Change in price results in a proportionately larger change in supply
WHAT IS THE PES in this example?
60/11 = 5.45
Greater than 1 = Elastic
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

7. Question 1 – Supply curve – pg30
Question 1: (a) When the price of the good rises from £20 to £30, the amount supplied rises from 5,000 units to 6,000 units. (b) In this example, the price increases by 50 per cent from £20 to £30. However, the percentage increase in supply is much smaller. The increase in supply is only 20 per cent (from 5,000 to 6,000 units). Since the change in supply is less than the change in price, it could be argued that the change in supply is insignificant. (c) Goods which have inelastic supply will not be very responsive to changes in price. The percentage change in price will be greater than the percentage change in supply. In this case the change in price is 50 per cent and the change in supply is 20 per cent. Therefore, the product has inelastic supply.
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

8. Interpreting the value of elasticity
0 – perfectly inelastic supply
< 1 – supply is inelastic
1 – unit elasticity (% change in price = % change in supply)
> 1 – supply is elastic
∞ - perfectly elastic supply
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

9. Perfectly Inelastic Supply
Supply is fixed
Price change has no effect on supply
PES = 0
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

10. Perfectly Elastic Supply
Any amount supplied for a given price
PES = ∞
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

11. Question 2 – PES – pg32
(a) Supply is said to be price elastic if price elasticity of supply is greater than 1. In this case the price elasticity of supply for products X and Z are 2.4 and 5.1 respectively. Therefore, the supply of product Z (5.1) is the most price elastic. (b) The supply of product Y is price inelastic. Therefore the slope of the supply curve for this product will be steep. (c) The supply of product Z is very price elastic at 5.1. This means that a change in price will cause an even bigger change in supply. The amount supplied is very responsive to a price change.
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

12. Factors affecting PES
Time – producers need time to adjust output. The more time they have the more elastic supply will be.
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

13. SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

15. Economics in practice: The supply of gold
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

16. Chapter Review: ActiveBook
Chapter 8 quiz
SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve

17. Price elasticity of supply
Chapter 8 – Key terms
Price elasticity of supply
Add these to your Key words glossary and learn them!!
§SECTION A: The Market System | Part 1: Demand and Supply | Chapter 4: The Supply Curve§§