Leaving Certificate Microeconomics Practice Test

Price Elasticity of Supply (PES) measures how sensitive the quantity supplied of a good is to changes in its price. Specifically, it captures the percentage change in quantity supplied in response to a percentage change in price. A high PES indicates that suppliers can easily adjust their production levels in reaction to price changes, while a low PES suggests that supply is more inelastic, meaning that quantity supplied does not change much with price fluctuations.

For example, if the price of a product increases significantly, producers may respond by increasing their output if PES is high, as they can quickly ramp up production. Conversely, if PES is low, the same price increase might lead to only a small change in quantity supplied because producers cannot easily expand their operations or may face limits such as production constraints or resource availability.

This understanding is fundamental in economics as it helps predict how markets respond to various factors, including price changes.