1)Price elasticity of supply (also written as PES) measures how supply changes as price changes. PES is also used to measure how the supply of labor changes when wages go up or down. We calculate PES by dividing the percentage change in quantity supplied by the percentage change in price. Let's say for example that the price of a certain car decreases 10% and the quantity supplied decreases 5%:

• PES = 5 / 10
• PES = 0.5

Supply is inelastic when the PES is less than 1, as in the car example above. The percentage change in the quantity supplied of the car is less than the percentage change in the price. This may be because the car manufacturer is already producing as many of these cars as it can in its factory. When we graph a perfectly inelastic supply curve, we end up with a vertical line and the PES equals 0; this means that supply doesn't change at all.

When the price elasticity of supply is greater than 1, supply is elastic. The percentage change in the quantity supplied is more than the percentage change in the price. This means that a producer can adjust supply in response to changes in price, such as when there's a surplus of a product or if the item can be easily produced. When graphing a perfectly elastic supply curve, we'll end up with a horizontal line since supply is unlimited.

Price elasticity of supply can change over time as producers find more ways to increase supply over longer time periods. Examples include building new factories, growing more crops, or hiring new workers.

2)There is a relative correlation between income and elasticity of demand. That is, when the income of consumers increases, their demand for commodities also increases. The same effect is evident when the consumer's income falls where the demand for products declines.

For commodities that have alternatives or substitutes, their demand is elastic because when the prices of such goods heighten, consumers demand less of them and shift their demand to substitute products.