Chp.

9
Price Elasticity of
Supply
Sadia Muhammad Asim
 Price Elasticity of Supply (PES)
● The law of supply states that when there is an increase in price (ceteris paribus), producers will
increase the quantity supplied and vice versa
○ Economists are interested by how much the quantity supplied will increase
● Price elasticity of supply (PES) reveals how responsive the change in quantity supplied is to a change
in price. The responsiveness is different for different types of products.
● Calculation of PES
PES can be calculated using the following formula

PES
 Interpreting PES Values
● Interpreting PES Values
Value Name Explanation

0 The QS is completely unresponsive to a

Perfectly Inelastic
change in P (e.g. fixed number of seats in a theatre)
0→1 Relatively Inelastic The %∆ in QS is less than proportional
to the %∆ in P (e.g agricultural products)

∞
Relatively Elastic The %∆ in QS is more than proportional
to the %∆ in P (e.g t-shirts)
1→

∞
Perfectly Elastic The %∆ in QS will fall to zero with any %∆ in P. However, supply is
unlimited at a particular price. This is a very theoretical scenario but
is evident when examining international trade diagrams
 Factors That Influence the PES
● Some products are more responsive to changes in prices than other products. The factors that
determine the responsiveness are called the determinants of PES and include:
● Mobility of the factors of production: if producers can quickly switch their resources between products,
then the PES will be more elastic. For example, if prices of hiking boots increase and shoe manufacturers
can switch resources from producing trainers to boots, then boots will be price elastic in supply
● Availability of raw materials: if raw materials are scarce then PES will be low (inelastic). If they are
abundant, PES will be higher (elastic)
● Ability to store goods: if products can be easily stored then PES will be higher (elastic) as producers can
quickly increase supply. An inability to store products results in lower PES (inelastic)
Continuation- Factors That Influence the PES

● Spare capacity: if prices increase for a product and there is capacity to produce more in the
factories that make those products, then supply will be elastic. If there is no spare capacity to
increase production, then supply will be inelastic
● Time period: in the short run, producers may find it harder to respond to an increase in prices
as it takes time to produce the product. However, in the long run they can change any of their
factors of production so as to produce more
 Sources:
● Cambridge International AS A level Economics Coursebook
4th Edition (Colin Bamford Susan Grant) (z-lib.org) (studylib.net)
● Cambridge International AS and A Level Economics Ebook (papacambridge.com)
● Elasticity of Supply (1.2.5) | Edexcel A Level Economics A Revision Notes 2017 | Save My Exams
● https://www.bing.com/ck/a?!
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