Key Idea: Price goes up. How fast can producers make more? That is price elasticity of supply. A factory can run another shift tonight. A farmer waits for next year's harvest. The answer decides how much of a demand shift lands on price and how much on quantity, and that is why commodity prices swing so much. Where you meet it:
Paper 1
- Essays.
- Explain [10]: why farm products have lower price elasticity of supply than manufactured goods.
Paper 2
- Data response.
- Calculate [2]: PES from two price and quantity pairs.
- Explain [4] with a diagram: why a demand rise moves price more when supply is inelastic.
Every later unit
- The same number, a new job.
- Who pays a tax, why farm incomes swing, what a subsidy ends up costing.
PES: how much supply moves when price moves
Price elasticity of supply measures how much quantity supplied responds to a change in the good's own price. The real question behind it: if the price rises, how quickly and easily can producers make more?
- price elasticity of supply (no units, always positive)
- percentage change in quantity supplied
- percentage change in the good's own price
| PES | Supply is… | Curve | Example |
|---|---|---|---|
| more than 1 | elastic: producers respond a lot | flatter | T-shirts: run another shift |
| less than 1 | inelastic: producers barely respond | steeper | a crop: the harvest takes a season |
| 0 | perfectly inelastic: no response at all | vertical | seats at tonight's concert |
| exactly 1 | unit elastic | a straight line through the origin | quantity and price change by the same percentage |
Price up, quantity supplied up, so PES is positive. Compare the size with 1 and you are done. Steep is inelastic, flat is elastic: the same rule as demand.
What makes supply elastic
Supply is elastic when firms can make more quickly, and inelastic when they cannot. Five things decide which.
| Determinant | Supply is more elastic when… | Example |
|---|---|---|
| Time | producers have had longer to build, hire and switch | a crop this season is fixed; in five years farmers can plant more |
| Spare capacity | there are idle machines or workers to switch on | a factory running at 60% can go to 100% this week |
| Stocks | the good can be stored and released | tinned food, yes; fresh fish, no |
| Mobility of factors | workers and machines can switch to the good easily | a bakery moving from rolls to baguettes |
| Production time | the good is quick to make | a T-shirt is printed in minutes; a ship takes years |
Almost every supply curve is inelastic in the short run and more elastic in the long run, because given long enough producers can build, hire and switch. Say short run or long run every time. The same good has a different PES in each.
Why commodity prices swing
Shift demand against a steep supply curve and most of the change lands on price. Shift it against a flat one and most lands on quantity. Tap through the same shift, twice.
Animated graph
Watch the graph build step by step in study mode.
| Supply is… | Demand rises, so… | Where you see it |
|---|---|---|
| inelastic | price jumps, quantity barely moves | oil, wheat, hotel rooms during a festival |
| elastic | quantity rises, price barely moves | T-shirts, bottled water |
Important: One diagram cannot show a comparison. Draw the steep case and the flat case side by side, the same demand shift on both, and read the price change off each.
Worked examples
The three shapes this topic is asked in, with new scenarios. Try each before opening the plan.
The price of avocados rises from €2.00 to €2.50 per kilogram. Over the same season the quantity supplied rises from 800 tonnes to 880 tonnes. Calculate the price elasticity of supply.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
Now the diagram question.
A music festival brings thousands of visitors to a small city for one weekend. The supply of hotel rooms is price inelastic in the short run. Using a demand and supply diagram, explain the effect on the price of hotel rooms.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
And the Paper 1 shape.
Explain why the supply of manufactured goods is usually more price elastic than the supply of agricultural products.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
Quick self-check
Tap each card to check yourself.
Price rises 20% and quantity supplied rises 5%. PES, and what kind of supply? PES = 5 ÷ 20 = 0.25. Less than 1: inelastic. Producers barely respond.
Why is PES always positive? Because price and quantity supplied move the same way: the law of supply. So there is no sign to interpret, only the size.
Why is the supply of a crop inelastic this season but not in five years? Time. This season the fields are already planted. Given years, farmers plant more land and supply becomes elastic.
A factory runs at 60% of capacity. Elastic or inelastic supply? Elastic. Spare capacity means it can switch on idle machines and workers as soon as the price makes it worth it.
Why does storable tinned food have more elastic supply than fresh fish? Stocks. Tins in a warehouse can be released when price rises. Fish cannot wait, so today's catch is today's supply.
Demand rises and supply is inelastic. What moves more: price or quantity? Price. Producers cannot add much, so the shortage is cleared by a big price rise. This is why commodity prices are volatile.
What does a vertical supply curve mean? Perfectly inelastic supply, PES = 0. Quantity cannot change at all: the seats at tonight's concert.
Name the single most important determinant of PES. Time. Almost every supply curve is inelastic in the short run and more elastic in the long run.
Exam tips
- PES is positive. Compare the size with 1: above is elastic, below is inelastic.
- Steep is inelastic, flat is elastic. The same rule as demand.
- Time is the biggest determinant. Say short run or long run every time.
- Percentage change is (new − old) ÷ old × 100. Elasticity has no units.
- Inelastic supply plus a demand shift means a big price change. That is the mechanism behind volatile commodity prices; draw the steep curve and say it.
- Comparing two cases? Draw two diagrams, the same shift on each.
- Explain with determinants and a named good: spare capacity, stocks, time. Supply is inelastic on its own earns nothing.