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You need to be able to:<br />
Price Elasticity of Supply (PES)<br />
• Calculate PES using the following equation.<br />
Calculating PES<br />
Step 1<br />
Calculate the percentage changes in price and quantity supplied.<br />
The change in price is worked out by taking the original price away from the new price and<br />
then dividing that by the original price.<br />
The change in quantity supplied is worked out by taking the original quantity away from the<br />
new quantity and then dividing that by the original quantity.<br />
E.g.<br />
If the quantity supplied of white chocolate Easter eggs increases from 40,000 to<br />
48,000 per year, when the price increases from $5 to $5.50:<br />
Then the percentage change in price is:<br />
and the percentage change in quantity supplied is:<br />
Step 2<br />
Divide the percentage change in quantity supplied by the percentage change in price, in<br />
order to get the value of the PES.<br />
E.g. In the example above, .<br />
Now you have a go!<br />
Question 2.6<br />
Calculate the PES for the following changes:<br />
a. If the price of a good increases by 16% and the quantity supplied increases by 10%.<br />
b. If price increases from $7.00 to $7.70 and quantity supplied increases from 75 units<br />
to 90 units.<br />
c. If price falls from $6.50 to $5.20 and quantity supplied falls from 1,200 to 1,140 units.<br />
Question 2.7<br />
Answer the following questions by using the formula for PES:<br />
a. If the value of PES is 0.75 and the price of the product increases by 12%, what will<br />
the percentage increase in quantity supplied be<br />
b. If the value of PES is 1.25 and quantity supplied falls by 20%, when the price of a<br />
good is decreased, what was the percentage fall in the price of the good<br />
Produced by Ian Dorton & Jocelyn Blink Page 15
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