Determinants of PES
Elasticity of Supply
AO2
Syllabus requirement
Factors affecting PES include time period, mobility of factors of production, spare capacity, ability to store output, and rate at which costs rise.
Assessment objectives
AO2 Application and Analysis
Summary
This topic explains the main factors that determine the price elasticity of supply (PES), i.e. how responsive quantity supplied is to a change in price. It covers five key determinants — time, factor mobility (substitution), unused capacity, ability to store (inventory), and the rate at which marginal costs increase — and shows how each makes supply more or less elastic in the short run and long run. Understanding these determinants helps predict firms' supply responses to price changes and the resulting market outcomes.
