📐 Price Elasticity of Supply
Definition: PES (Price Elasticity of Supply) tells you HOW MUCH quantity supplied changes when price changes.
The formula
PES = % change in quantity supplied ÷ % change in price
PES is always positive (law of supply — price up, Qs up). Unlike PED, you do NOT need to worry about signs.
Interpreting the value
- PES > 1 → Elastic supply — Qs changes by MORE than price (producers can respond quickly)
- PES < 1 → Inelastic supply — Qs changes by LESS than price (producers struggle to respond)
- PES = 1 → Unit elastic supply
- PES = 0 → Perfectly inelastic — Qs fixed regardless of price (vertical S curve)
- PES = ∞ → Perfectly elastic — any price change causes unlimited Qs change (horizontal S curve)
The key question PES answers: 'If price rises, how quickly and easily can producers increase output?' If they can increase quickly → elastic. If not → inelastic.
📊 PES on Diagrams
- Flatter supply curve → MORE elastic (producers respond a lot to price changes)
- Steeper supply curve → MORE inelastic (producers cannot easily adjust output)
- Vertical supply curve → perfectly inelastic (fixed supply, e.g. seats in a stadium)
- Horizontal supply curve → perfectly elastic
Why this matters for equilibrium
When demand shifts, the elasticity of supply determines HOW MUCH of the change appears in price versus quantity:
- Elastic supply + demand shifts right → mostly QUANTITY rises, small price increase
- Inelastic supply + demand shifts right → mostly PRICE rises, small quantity increase
Concert tickets have perfectly inelastic supply (fixed number of seats). When a popular artist announces a tour, demand surges but Qs cannot increase → price skyrockets.
Memorize terms 3x faster
Smart flashcards show you cards right before you forget them. Perfect for definitions and key concepts.
Try Flashcards Free7-day free trial • No card required
🧮 Calculating PES
The calculation is identical in structure to PED — just use quantity supplied instead of quantity demanded.
A farmer can increase wheat production from 1,000 to 1,200 tonnes when price rises from $200 to $250 per tonne. % change in Qs = (200/1000) × 100 = 20%. % change in P = (50/200) × 100 = 25%. PES = 20%/25% = 0.8. Supply is inelastic (PES < 1).
Show your working CLEARLY in the exam: (1) calculate % change in Qs, (2) calculate % change in P, (3) divide, (4) interpret the result (elastic or inelastic and what that means).