<2.3 PES>

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"What if we now focus on an INCREASE IN THE DEMAND FOR A-LEVELS IN HONG KONG? "Do you think QUANTITY will again increase more than PRICE?"

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"Unlikely, right, for so many reasons, such as the availability of actual space and the red tape must be mindblowing, so you should realise that QUANTITY has increased at a much slower rate than PRICE."

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--TASK--

So we can say that when prices rise the 'responsiveness' of quantity supplied is much greater in the case of Labubu dolls compare dto A level colleges, right and we can measure this 'responsiveness' of quantity supplied using PES

# PRICE ELASTICITY OF SUPPLY — PES

**PES measures the responsiveness of QUANTITY SUPPLIED to a change in PRICE, ceteris paribus.**

$$

PES=\frac{\%\Delta Q_S}{\%\Delta P}

$$

So PES doesn't simply ask:

**"Does quantity supplied increase when price increases?"**

We already know that from the **LAW OF SUPPLY**.

Instead, PES asks:

> **"HOW MUCH does quantity supplied respond?"**

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# USE YOUR MATHS KNOWLEDGE

Before learning any more economics, consider something you already know from mathematics.

Take two variables:

**X and Y**

If X changes, how could we measure how much Y changes in response?

You have probably encountered:

$$

\text{Gradient}=\frac{\Delta Y}{\Delta X}

$$

What does **Δ** mean?

What does the gradient tell us?

And if we plotted two points on a curve, how could we measure the **AVERAGE RATE OF CHANGE BETWEEN THOSE TWO POINTS?**

Keep that thought.

Because elasticity is fundamentally concerned with a very similar question:

> **How responsive is one variable to a change in another?**

But economists are going to make one important modification.

Instead of simply comparing **absolute changes**, we are going to compare **percentage changes**.

Why might percentages be more useful?

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# THINK...

Suppose:

**Firm A increases production by 100 units.**

**Firm B increases production by 100 units.**

Have the two firms responded equally?

Not necessarily.

What if:

**Firm A originally produced 100 units?**

100 → 200

but...

**Firm B originally produced 10,000 units?**

10,000 → 10,100

Both increased production by **100 units**.

But are these really equally large responses?

**What mathematical tool could make these changes comparable?**

### PERCENTAGES.

And this is why elasticity is so useful.

$$

\boxed{\text{ELASTICITY = PROPORTIONATE RESPONSIVENESS}}

$$