IGCSE+Price+Elasticity+of+Supply

=Price Elasticity of supply = =Price elasticity of supply measures the change in the amount that a firm supplies in response to a change in price. It is measured as follows = = = = = = = =percentage change in quantity supplied / percentage change in price = = = = = = = =Values of price elasticity of supply = = = =Factors affecting Elasticity of supply = = = == = = =Spare Capacity= =If there is spare capacity, the firm should be able to increase output without a rise in costs and therefore supply will be elastic. Supply of goods and services is often elastic at the end of an economic recession, when there is plenty of spare labour and capital resources available to step up output.= = = =Stocks= =If stocks of raw materials, components and finished products are high then the firm is able to respond to a change in demand quickly by supplying these stocks onto the market - supply will be elastic.= = = =Time period= =Supply is more elastic the longer the time period a firm has to adjust its production. In the short run, the firm may not be able to change its factor inputs. In agricultural markets, the supply is fixed and determined by planting decisions made months before, and climatic conditions, which affect yields.= =Economists sometimes refer to the momentary time period – a time period that is short enough for supply to be fixed i.e. supply cannot respond at all to a change in demand.= = =
 * =Elasticity is greater than one - the good is elastic and is highly responsive to changes in price. A percentage change in price leads to a larger percentage change in the quantity supplied. A straight line supply curve will intersect the price axis. =
 * =Elasticity is equal to one - the good has unitary elasticity, a percentage change in price will lead to an equal percentage change in the quantity supplied. Any straight line supply curve that intersects the origin will have unitary elasticity. =
 * =Elasticity is less than one - the good is inelastic and not very responsive to changes in price. A percentage change in price leads to a smaller percentage change in quantity. . A straight line supply curve will intersect the quantity axis. =
 * =Elasticity is equal to zero - the good is perfectly inelastic and a change in price lead to no change in the quantity supplied. =
 * =Elasticity is equal to infinity - the good is perfectly elastic and any decrease in price will cause the quantity supplied to fall to zero. =