Price elasticity of supply

Price elasticity of supply (PES) measures how responsive quantity supplied is to a change in price.

$\text{PES} = \dfrac{\% \text{ change in quantity supplied}}{\% \text{ change in price}}$

The same three steps as PED:

1. Calculate % change in quantity supplied.
2. Calculate % change in price.
3. Divide: PES = step 1 / step 2.

Worked example. Wheat price rises from $200 to$220 per tonne. Quantity supplied rises from 1m to 1.1m tonnes.

• %ΔQ_s = +10%.
• %ΔP = +10%.
• PES = +10/+10 = +1 → unit elastic.

The positive sign. PES is normally POSITIVE because supply and price move in the SAME direction (law of supply). Don't add a negative sign.

Categories mirror PED:

PES	Category
0	Perfectly inelastic
0-1	Inelastic
1	Unit elastic
>1	Elastic
∞	Perfectly elastic

Cambridge tip. Mark schemes for PES calculation reward 1 mark per percentage change + 1 for the formula + 1 for the answer. Show working.

1. Time period.

The MOST important determinant of PES.

• Short run. Firms cannot quickly expand capacity. Building new factories, training workers, sourcing more raw materials all take time. Supply is INELASTIC.
• Long run. Firms can adjust capacity. New factories built, workers trained, capital expanded. Supply becomes more ELASTIC.

Example. Crude oil. Short-run PES is low — drilling new wells takes years. Long-run PES is much higher.

2. Spare capacity.

Firms with UNUSED productive capacity (idle machines, available workers) can expand supply quickly → ELASTIC supply.

Firms running at FULL capacity cannot easily expand → INELASTIC supply.

Example. A bakery with one oven running at half-capacity can quickly produce more bread when prices rise (elastic). A bakery already running 24 hours cannot (inelastic).

3. Stock levels.

Goods that can be STORED (manufactured goods, non-perishable items) → firms can hold inventory and release it when prices rise → ELASTIC supply.

Goods that CANNOT be stored (perishable: fresh fish, dairy, fruit) → supply is INELASTIC. The producer cannot wait for prices to rise.

4. Mobility of factors of production.

If labour and capital can be EASILY shifted into producing more of this good → ELASTIC supply.

If factors are SPECIALISED and cannot easily move (e.g., a surgeon cannot become a baker overnight) → INELASTIC supply.

Cambridge tip. Mark schemes for 6-mark "explain the determinants of PES" questions expect 3 distinct factors. The most-rewarded are time period, spare capacity, and stock levels.