Price elasticity of supply
CIE A-Level EconomicsΒ· Unit 2: 2.3 ElasticityΒ· 15 min read
1. Definition and Calculation of PESβ β ββββ± 4 min
Price Elasticity of Supply
A measure of the sensitivity of quantity supplied of a good to a change in its own price, holding all other factors constant.
When the price of wheat increases from $3 per bushel to $3.60 per bushel, weekly quantity supplied increases from 5000 bushels to 5600 bushels. Calculate PES.
- 1
Step 1: Calculate percentage change in quantity supplied:
- 2
Step 2: Calculate percentage change in price:
- 3
Step 3: Substitute into the PES formula:
2. Interpreting PES Valuesβ β ββββ± 5 min
PES is always positive, because the law of supply states that price and quantity supplied move in the same direction. The value of PES tells us how responsive supply is to price changes:
PES Value | Elasticity Category | Description |
|---|---|---|
= 0 | Perfectly inelastic | Quantity supplied does not change |
0 < PES < 1 | Inelastic | Smaller % change in Qs than P |
= 1 | Unit elastic | Equal % change in Qs and P |
| Elastic | Larger % change in Qs than P |
= β | Perfectly elastic | Any quantity supplied at current price |
A rare original Picasso painting is being sold at auction. What is the PES of this painting?
- 1
Step 1: There is only one copy of the painting in existence, so quantity supplied is fixed no matter what price buyers offer.
- 2
Step 2: The percentage change in quantity supplied is 0% for any change in price.
- 3
Step 3: , so supply is perfectly inelastic.
3. Determinants of PESβ β β βββ± 6 min
PES depends on how easily producers can adjust their level of output in response to a price change. The key factors are:
Time period: Supply is more inelastic in the short run, as producers cannot easily change output; it becomes more elastic in the long run as capacity can be adjusted.
Factor mobility: If factors of production can be easily switched into this market from other uses, supply is more elastic.
Spare capacity: If a firm has unused labour and capital, it can increase output quickly, so supply is more elastic.
Storability: If finished goods can be stored easily, firms can draw on inventory to increase supply when price rises, making PES more elastic.
Explain why PES is lower for fresh milk than for bottled soft drinks in the short run.
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- Fresh milk is perishable and cannot be stored for long periods, so firms cannot draw on existing stocks to increase supply when price rises.
- 2
- Output of fresh milk cannot be increased quickly β it takes time to raise more dairy cows and increase production.
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- Bottled soft drinks can be stored easily, and factories can increase production quickly if they have spare capacity. Therefore PES of fresh milk is lower (more inelastic) than PES of soft drinks.
4. Applications of PESβ β β βββ± 5 min
PES helps predict how shifts in demand will affect equilibrium price and quantity, and who bears the burden of an indirect tax. If supply is inelastic, an increase in demand leads to a large rise in price and only a small rise in quantity. If supply is elastic, the opposite is true.
The government adds an indirect tax to cigarettes. If supply of cigarettes is elastic, will producers or consumers bear most of the tax burden?
- 1
- An indirect tax reduces the price producers receive after tax. If supply is elastic, producers are very responsive to a fall in price.
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- Producers will cut output significantly, pushing the pre-tax price up. Most of the tax is passed to consumers as a higher retail price.
- 3
- If PES is higher (more elastic), a larger share of the tax burden falls on consumers, which matches this outcome.
5. Common Pitfalls
Wrong move:
Claiming PES can be a negative number
Why:
Confusing PES with price elasticity of demand, which is usually negative
Correct move:
Always remember PES is positive, because the law of supply means price and quantity supplied move in the same direction
Wrong move:
Swapping numerator and denominator in the PES formula
Why:
Mixing up percentage changes of quantity and price
Correct move:
Remember: PES (like PED) is always quantity over price: % change quantity divided by % change price
Wrong move:
Confusing determinants of PES with determinants of PED
Why:
Mixing up demand-side and supply-side factors that influence elasticity
Correct move:
Focus PES explanations on producer ability to change output, not consumer substitutes or income
Wrong move:
Claiming agricultural supply is elastic in the short run
Why:
Forgetting that crops and livestock take time to produce
Correct move:
Always note that agricultural supply is inelastic in the short run and only becomes elastic in the long run
6. Quick Reference Cheatsheet
PES Value | Type | Key Feature |
|---|---|---|
PES = 0 | Perfectly inelastic | Fixed quantity (e.g. rare art) |
0 < PES < 1 | Inelastic | Short run, perishable goods |
PES = 1 | Unit elastic | Supply curve through origin |
PES > 1 | Elastic | Long run, spare capacity, storable |
PES = β | Perfectly elastic | Constant cost production |
When this came up on past exams
AI-estimated based on syllabus patterns β cross-check with official past papers for accuracy. Use only as revision-focus signals.
- 2023 Β· Paper 1
MCQ on PES determinants
- 2022 Β· Paper 2
Data response on agricultural PES
- 2021 Β· Paper 1
MCQ on tax incidence and PES
Going deeper
What's Next
Mastering PES completes your foundation in core elasticity concepts, which are essential for all further microeconomic analysis in CIE A-Level Economics. PES is regularly tested alongside price elasticity of demand in both multiple choice and longer answer questions, and it is critical for explaining outcomes from government intervention like taxes, subsidies and price controls. You can now apply your understanding of PES to these policy topics, to build interconnected knowledge that helps you score full marks in extended response questions.