Factors Affecting PES
Definition
Spare capacity: unused machines, labour and other resources a firm can bring into production without new investment.
Mobility of factors of production: the ease with which land, labour and capital can be switched from one use to another.
The Main Determinants
- Spare capacity
- Idle machines and available workers let firms lift output quickly at little extra cost, so supply is more elastic.
- Availability of stocks
- Stored finished goods can be released without new production, so quantity supplied rises fast and elasticity is higher.
- Mobility of factors of production
- When labour and capital switch easily into the industry, firms expand output faster and supply is more elastic.
- Ease and cost of storage
- Durable goods that are cheap to store can be stockpiled and released, so their supply is more elastic than that of perishables such as fresh strawberries.
Key Idea
- Every factor works through the same mechanism: how quickly and cheaply firms can change output after a price change.
- Anything that makes adjustment faster or cheaper raises PES; anything that slows or blocks it lowers PES.
Time Periods
- Momentary run
- Output cannot be changed at all, so supply is perfectly or highly inelastic.
- Short run
- At least one factor is fixed, so firms can vary output only a little and supply stays inelastic.
- Long run
- All factors are variable, so firms can fully adjust capacity and supply becomes far more elastic.
Example
- A clothing manufacturer with spare machines and stored fabric can raise output within days, so its supply is elastic.
- A vineyard cannot grow new vines quickly, so its supply is highly inelastic in the short run and only becomes elastic over several years.
Why It Matters
- These factors explain why supply is elastic in some markets yet inelastic in others.
- They let you predict how quickly a market can respond to a rise in demand.
- They anchor PES to the real production conditions firms face rather than to the number alone.
Which Factor Dominates
- Time is usually decisive, because it is what allows all the other factors to take effect.
- Spare capacity and stocks matter most in the short run, before capacity itself can be expanded.
- The factors usually combine, so a supported judgement about a specific market is needed rather than one blanket rule.
Exam technique
- Explain each factor in terms of how fast and cheaply firms can change output.
- Give the time period particular weight in any judgement.
- Apply the factors to the specific market named in the question.
Common Mistake
- Do not list factors without explaining how each makes supply faster or slower to respond.
- Do not overlook the time period, which is usually the most important factor of all.
Self review
- Name four factors affecting PES.
- How does spare capacity raise PES?
- Why is supply more elastic in the long run than the short run?
- Why is a vineyard's supply inelastic in the short run?
- How does the ease and cost of storage affect PES?
