Price Elasticity of

SUpply
Year 10
Price elasticity of supply (PES)

h) Definition of PES.
i) Formula of PES. 1.1.4 Price Elasticity of Supply
j) Calculate the PES using given percentage changes in quantity supplied and
percentage changes in price.

k) The use of diagrams to show price elastic and price inelastic supply.

l) Interpret numerical values of PES that show:

Learning Learning Objectives

• perfect price inelasticity
• price inelasticity

• unitary price elasticity

Objectives
• price elasticity
• perfect price elasticity.

m) The factors influencing PES, including:

• factors of production

• availability of stocks
• spare capacity Time to put on your producer hat!
• time.
n) Use examples to show the likely PES for manufactured and primary
products 2
What is PES?
• Price Elasticity of Supply (PES) is the responsiveness of quantity supplied to
a change in price.

• Which means, that when prices increase, are suppliers (producers) able to
increase their supply of goods/services by a small amount or large amount.
• For example: Farmers of bananas may not be able to respond by a lot if the
price of bananas increase. Why?
3
Elastic vs Inelastic
If PES is elastic that means producers are responsive to changes in price and can increase
supply a lot when the price changes

If PES is inelastic that means producers are not very responsive to changes in price and
cannot increase supply a lot when the price changes.

Can you identify which Good has an elastic PES and which one has an inelastic?

4
Calculating PES
• % Change in quantity supplied/ % Change in Price

• PES will always be +ve – why? Price and quantity have a positive relationship (profit incentive for firms)

• PES <1 (0.5 etc) will be PES inelastic, as there is not a significant change in supply

• PES >1 (1.5 etc) will be PES elastic, as there is a significant change in supply.

5
Practice questions
1. (a) On Tuesday, the price of Eggs goes up from £1.20 to £1.42. On the same day, Tesco increases its stock
from 50 packs to 75 packs. What is the PES?
2. Is the PES of Eggs elastic or inelastic?
3. On Wednesday, the price of dog food increases by 20%. On the same day, Petsmart increases its supply
from 100 cans to 115 cans. What is the PES?
4. Is the PES of dog food elastic or inelastic?
5. On Thursday, the price of vacuum cleaners goes up from £60 to £75. As a result of this, Apollo 2000
increases its stock from 4000 to 6000 units. What is the PES?
6. Is the PES of vacuum cleaners elastic or inelastic?

6
Practice questions

7
Diagrams
• Using your knowledge of PED, can you suggest which ‘special cases’ each of
these curves represents?

• S1 – Perfectly inelastic supply – Supply is completely fixed and the PES = 0

• S2 – Perfectly elastic supply – Suppliers are willing to supply an endless amount

at one price PES = Infinity

• S3 – Unitary elastic supply – Any supply curve that passes through the origin
has a PES = 1, meaning a 1% change in price, leads to a 1% change in supply.
8
9
Quick knowledge check
• What does elastic supply mean?
• What would a PES coefficient of 0.5 mean?
• What would a PES coefficient of 2.5 mean?
• Name 2 products that are likely to have inelastic supply.
• Name 2 products that are likely to have elastic supply`

10
Elastic or inelastic
Thinking as a producer
Which one would you be able to increase the
supply of and respond to quickly?

Why?

11
Factors affecting PES
Year 10
MESSPT
Mobility of Factors of Production

Ease of Entry into the market

Spare Capacity

Stocks

Production Speed

Time

13
MESSPT

14
Questions
• Assess whether the PES of strawberries is more elastic than chocolate

• Assess whether the PES of french fries is more elastic than potatoes

• Assess whether fresh flowers is more elastic than birthday cards

15
16
Case Study
• Pepsi and Coca-cola are competitors in the soda market.
• Pepsi has 10 production centres across the UAE, where-as coca-cola has 15.
• Currently, all of Pepsi’s centres are at full capacity, where-as coca-cola are only at 80% capacity.
• Coca-cola can produce 100 cans a second, whereas Pepsi can produce 60 a second.
1. If the price of all soda’s increased, what would each company do?
2. Which company would be more able to take that action and why?

17
Price elasticity of supply (PES)

h) Definition of PES.
i) Formula of PES. 1.1.4 Price Elasticity of Supply
j) Calculate the PES using given percentage changes in quantity supplied and
percentage changes in price.

k) The use of diagrams to show price elastic and price inelastic supply.

l) Interpret numerical values of PES that show:

Learning Learning Objectives

• perfect price inelasticity
• price inelasticity

• unitary price elasticity

Objectives
• price elasticity
• perfect price elasticity.

m) The factors influencing PES, including:

• factors of production

• availability of stocks
• spare capacity Time to put on your producer hat!
• time.
n) Use examples to show the likely PES for manufactured and primary
products 18
 Key Word BINGo
Match the definition that I will put up to your sheet

19