PES Formula and Examples: Mastering Supply Elasticity Calculations

📚 Quick Study Guide

• 📏 Definition: Price Elasticity of Supply (PES) measures the responsiveness of the quantity supplied of a good or service to a change in its price.
• 🧮 Formula: The basic formula for PES is: $PES = \frac{\% \ Change \ in \ Quantity \ Supplied}{\% \ Change \ in \ Price}$
• ➕ Elastic Supply (PES > 1): Supply is considered elastic when a small change in price leads to a larger change in quantity supplied.
• ➖ Inelastic Supply (PES < 1): Supply is inelastic when a change in price has a relatively small effect on the quantity supplied.
• 🤝 Unit Elastic Supply (PES = 1): Quantity supplied changes proportionally with the change in price.
• ⏱️ Factors Affecting PES: These include availability of resources, production time, storage capacity, and the ability to shift resources into production.
• 💡 Example: If the price of wheat increases by 10% and the quantity supplied increases by 5%, the PES is 0.5 (5%/10%), indicating inelastic supply.

🧪 Practice Quiz

1. What does Price Elasticity of Supply (PES) measure?
   1. A. The responsiveness of quantity demanded to a change in price.
   2. B. The responsiveness of quantity supplied to a change in income.
   3. C. The responsiveness of quantity supplied to a change in price.
   4. D. The responsiveness of quantity demanded to a change in supply.
2. If the percentage change in quantity supplied is 20% and the percentage change in price is 10%, what is the PES?
   1. A. 0.5
   2. B. 2
   3. C. 10
   4. D. 200
3. When is supply considered elastic?
   1. A. When PES < 1
   2. B. When PES = 1
   3. C. When PES > 1
   4. D. When PES = 0
4. Which of the following indicates inelastic supply?
   1. A. PES = 1.5
   2. B. PES = 0.7
   3. C. PES = 2
   4. D. PES = 1
5. What does it mean if PES = 1?
   1. A. Supply is perfectly elastic.
   2. B. Supply is perfectly inelastic.
   3. C. Supply is unit elastic.
   4. D. Supply is inelastic.
6. Which of the following is a factor that affects PES?
   1. A. Consumer preferences
   2. B. Availability of resources
   3. C. Government regulations on demand
   4. D. Advertising expenditure
7. If a 5% increase in price leads to a 5% increase in quantity supplied, what is the PES?
   1. A. 0
   2. B. 0.5
   3. C. 1
   4. D. 2