2.4 Price Elasticity of Supply

What is price elasticity of supply?

Price elasticity of supply (PES) measures how responsive quantity supplied is to a change in price. It's calculated as %change in quantity supplied ÷ %change in price. A high PES means producers can ramp up output easily when price rises; a low PES means output barely changes.

Elastic vs. inelastic supply

Supply is elastic when PES > 1 (quantity responds strongly), inelastic when PES < 1 (quantity barely responds), unit elastic when PES = 1, perfectly elastic when PES = infinity (horizontal curve), and perfectly inelastic when PES = 0 (vertical curve).

Determinants of PES

Key factors: time (supply is more elastic over longer periods, since producers can adjust inputs/capacity), availability of inputs/resources, ease of storing goods, and how easily production can shift between goods. Perishable goods or fixed-capacity industries tend to have inelastic supply.

Key terms

Price elasticity of supply (PES)

%change in quantity supplied ÷ %change in price; measures how responsive supply is to price changes.

Elastic supply

PES > 1; quantity supplied changes proportionally more than price.

Inelastic supply

PES < 1; quantity supplied changes proportionally less than price.

Perfectly elastic vs. perfectly inelastic supply

Perfectly elastic (PES = ∞): horizontal curve. Perfectly inelastic (PES = 0): vertical curve.

Key determinant of PES

Time — the longer producers have to adjust inputs and capacity, the more elastic supply becomes.

Try an AP-style question

Supply is usually more elastic in the long run because…

1. fewer firms exist
2. demand falls over time
3. prices are fixed
4. firms have time to adjust inputs