PES measures the responsiveness of quantity supplied given a change in price.
PES: %change in quantity supplied %change change in price
According to the website (solutions, 2015) illustrates how the prices of coffee beans are decreasing in the long run, since there is more time available to increase the speed / efficiency of the production process. The supply curve is therefore becoming more and more elastic, and gradually over time the supply curve shifts to the right, with more production. Demand for coffee beans in the long-run is unaffected by any production changes, so if supply increases, price falls, and more coffee beans are consumed, as outlined in the chart below.
However, in the short run, prices…show more content… Additionally, on the other hand, if producers decide to increase prices, on the basis of relatively inelastic consumers, there is always a price set where it becomes infeasible to consume coffee at, and people will automatically turn to other drinks such as tea, specifically green tea that also contains…show more content… in the UK: Tesco, Sainsbury’s etc.). Firms are interdependent meaning that decision of one firm directly affects the strategies used by the competitive firms. Firms operating in an oligopolistic market operate on profit max level, where MC=MR. Therefore, the coffee sold to households may not largely increase in price, as if one supermarket increases the price, it may lose market share due to other supermarkets which may keep the same price. The impact would be that the supermarkets would lose out from a gross margin perspective, rather than pass on an increased price to consumers. As a result, the impact of the price changes in coffee beans may not be reflected by the quantity of coffee sold through supermarkets, but by the reduced profit levels from the selling of this