Price Elasticity of Supply

Price elasticity of supply (PES) measures how responsive the quantity supplied of a good is to a change in its price. Where PED looks at buyers, PES looks at how quickly and easily producers can change output.

The formula

PES = percentage change in quantity supplied ÷ percentage change in price. Because price and quantity supplied move in the same direction, PES is normally positive.

Elastic, inelastic and unit-elastic supply

What makes supply elastic?

• Spare capacity: if firms have idle machines and workers, they can raise output quickly (elastic).
• Stocks: if goods can be stored, extra can be released fast.
• Ease of switching: if factors of production can be moved into making the good easily, supply is more elastic.
• Availability of raw materials: plentiful inputs make supply more elastic.

The role of time

Time is central to PES. In the very short run, output is almost fixed, so supply is highly inelastic. In the short run, firms can vary some inputs, so supply is more elastic. In the long run, firms can build new capacity and new firms can enter, so supply is the most elastic of all. This is why a sudden demand rise first pushes prices sharply up, then eases as supply expands over time.

Worked check: if price rises 10% and quantity supplied rises 25%, PES = 25 ÷ 10 = 2.5 (elastic).

The method for calculating PES mirrors PED: divide the percentage change in quantity supplied by the percentage change in price, then compare the result to 1. The main difference is the sign — because supply obeys a direct relationship, both changes usually point the same way, so PES is positive. Understanding PES helps explain real price swings: goods that cannot be produced quickly, such as fresh farm produce, tend to have sharp price rises when demand jumps, whereas mass-produced goods with spare capacity see steadier prices.