PRICE ELASTICITY OF SUPPLY - It is the responsiveness of Quantity Supplied to the change in price of the product. 5 types of PES : 1.

Perfectly Inelastic Supply 2. Perfectly elastic Supply 3. Unitary elastic Supply 1. Perfectly inelastic This type of goods are usually fixed in supply. For ex) 10,000 units of oranges produced per month. This curve also presents the Quota , fixed price imposed by government on certain goods.

2. Inelastic Supply This means that a greater change in price will lead to a smaller change in a Quantity supplied only . These goods are : (Labour intensity) Lack of storing capacity Non replacable resources Agricultural/ farm goods Time consuming Perishable / can't last long Factors can't be changed easily

3. Elastic Supply A smaller change in price will lead to a greater change in Quantity Supplied These goods are : manufactured goods Factors can be changed easily Cheaper cost of production Changes can be made in short period of time Can be stored for a longer period of time.

WHY SOME GOODS HAVE ELASTIC SUPPLY AND SOME GOODS HAVE INELASTIC SUPPLY? EXPLAIN REASONS, DIAGRAMS & EXAMPLES?

The Determinants of PES 1. Technology Improvement Modern methods of production expand output much faster so supply tends to be elastic. If the older methods are being used, there will be less output being produced in a given period of time hence it will be inelastic supply. For example, agricultural products which uses modern technology can increase their products in the long run, On the other hand, manufactured goods with modern technology will be able to produce more output in short period of time. So it tends to be elastic. 2. Time period In the short run, supply tends to be inelastic. This is due to, not enough time to organize and adjust the supply to the demand. For example, the agricultural product. However, in the long run, supply is more elastic. This is because the producers or the sellers are more responsive to the change in prices, since they can adjust their supply or production quickly. For example, manufacturing products. 3. Availability & mobility of Factors of production The more mobile the factors of production are, the more elastic the supply will be. For example, in a manufacturing industry, the factors of production like land, labour and capital can be easily added or reduced or can easily be moved from one job to another job compared to agricultural industry where the factors of production are immobile. 4. Storing capacity Producers who hold stocks of goods can respond quickly to price changes so supply will be inelastic if it is impossible or expensive to store, supply will be inelastic. 5. Perishability

There are perishable products like agricultural products and the supply is more inelastic. Changes in price don't affect the supply because the sellers can't store perishable products for a long period of time. For example, fruits & vegetables. In the case of less perishable products like manufactured products the supply is more elastic. If the seller expects a price increase in 2 months, the seller may store these products for future sale. For example, cars, shoes and canned food.