Economics – The allocation of resources - Price elasticity of supply (PES) | e-Consult
The allocation of resources - Price elasticity of supply (PES) (1 questions)
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Answer: The supply curve shown is a relatively steep, upward-sloping curve. This indicates that the supply curve is relatively inelastic. Inelastic supply means that quantity supplied changes by a smaller percentage than the percentage change in price.
The steepness of the supply curve demonstrates that producers have a limited ability to adjust their output in response to changes in price. This could be due to factors such as:
- Short time horizon: Producers may face fixed costs and limited capacity to quickly increase production.
- Difficulty in obtaining resources: It may take time to secure additional inputs needed for increased production.
- Production processes are complex: The production process may be inherently slow to scale up.
Therefore, because the quantity supplied is not very responsive to price changes, the price elasticity of supply (PES) is relatively low (less than 1). A low PES implies that a change in price will lead to a proportionally smaller change in the quantity supplied.