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Red Apple

Unit 2 - Microeconomics

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Money Bag

Unit 1 - Intro To Econ & Core Concepts

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Open Book

Unit 3 - Macroeconomics

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Chart Increasing With Yen

Unit 4 - The Global Economy

Imagine you&#39;re the world&#39;s best pizza maker (every teenager&#39;s dream, right?). The time it takes to make a fresh pizza from scratch (let&#39;s call it our &quot;primary product&quot;) is usually more than if you were just heating up a frozen pizza (a &quot;manufactured product&quot;). This difference impacts how much pizza you can supply when more people suddenly want your mouthwatering pizzas (higher demand).

Imagine a crowd of hungry teenagers coming to your pizzeria after a football match. They all want pizzas right now! If you&#39;re making fresh pizzas, it&#39;ll take some time - you have to knead the dough, add the toppings, and bake it. On the other hand, if you&#39;ve pre-made frozen pizzas, you can just pop them in the oven, and voila! More pizzas in less time. So, you can respond quicker to the sudden pizza demand with your &quot;manufactured&quot; frozen pizzas than your &quot;primary&quot; fresh pizzas.

Now, let&#39;s dive a bit deeper into our pizza analogy. The PES measures how responsive the quantity supplied of a good is to a change in its price. In general, primary commodities like wheat, oil, or minerals (our fresh pizzas) usually have a lower PES compared to manufactured goods like cars, electronics, or our frozen pizzas.

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Why so? This is because there are often long time lags in producing primary products - like waiting for wheat to grow or mining minerals. In the same way, you&#39;d need time to make a fresh pizza from scratch. On the other hand, for manufactured goods, once you&#39;ve set up your production line (or pre-made your frozen pizzas), you can increase your output relatively quickly if the price (and therefore profit) rises.

Calculating PES PES: is calculated as the percentage change in quantity supplied divided by the percentage change in price.

<ul>
	<li>Foot massage services in Singapore We&#39;re told that the number of appointments increased from 2,140 to 2,568 when the price rose from S$50 to S$55 per appointment. So, the percentage change in quantity supplied is &nbsp;$\frac{2568-2140}{2140}$ = 20%. The percentage change in price is $\frac{155}{50}$ = 10%. So, the PES is $\frac{20%}{10%}$&nbsp;= 2. Our PES is greater than 1, which means supply is price elastic. Like a super flexible gymnast, the supply of foot massages is quick to respond to price changes!</li>
	<li>Wax candles The PES for wax candles is given as 1.4 (meaning it&#39;s quite responsive to price changes). Now, there&#39;s an 8% increase in price. To find the response in quantity supplied, we multiply the PES by the percentage change in price. So, 1.4 * 8% = 11.2%. This means that if the price of wax candles goes up by 8%, the quantity of candles that producers supply will increase by approximately 11.2%. So, in response to a tiny spark in price, candle producers flame up their production by a noticeable amount!</li>
</ul>

Comparing PES: Primary Commodities Vs. Manufactured Products

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Higher Level

Economics HL

Unit 2 - Microeconomics

Comparing PES: Primary Commodities Vs. Manufactured Products

Table of content

Simplified concept

Fun real-world example

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Unit 2 - Microeconomics

Comparing PES: Primary Commodities Vs. Manufactured Products

Table of content

Simplified concept

Fun real-world example

Unlock the Full Content!