Price elasticity of supply
Price elasticity of supply
$$\text{PES} = \frac{\%\ \text{change in quantity supplied}}{\%\ \text{change in price}}$$
- PES is positive. Supply is elastic if it responds a lot, inelastic if little.
Practice
Quantity supplied rises 8% when price rises 4%. What is the PES?
PES = %ΔQs ÷ %ΔP = 8 ÷ 4 = 2 (elastic).
What makes supply elastic
- spare capacity — unused machines/workers → quickly make more,
- stocks — goods in a warehouse to sell fast,
- how easily factors move into the industry,
- time:
- momentary — supply fixed (PES = 0),
- short run — at least one factor fixed (a little),
- long run — all factors change (most elastic).
Practice
Which make supply more elastic? (Choose all that apply.)
Spare capacity, stocks and more time let firms respond more, raising PES.
Practice
In the momentary period, the price elasticity of supply is:
In the momentary period supply cannot change, so PES = 0; it is most elastic in the long run.
You've got it
Key idea
- PES = %ΔQs ÷ %ΔP (positive)
- elastic with spare capacity, stocks, mobile factors, and more time
- momentary PES = 0; supply is most elastic in the long run