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Price elasticity of supply Cambridge IGCSE Economics revision

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In plain words

When the price of something rises, firms want to supply more. Price elasticity of supply (PES) measures how much more they can manage. A baker can quickly make more loaves. A farmer cannot grow more apples until next year.

So PES is about how easily and quickly production can change.

4 things to know

  1. PES = percentage change in quantity supplied ÷ percentage change in price.
  2. More than 1 is elastic, less than 1 is inelastic, exactly 1 is unitary. 0 is perfectly inelastic and infinity is perfectly elastic.
  3. Supply is more elastic when firms have spare capacity, hold stocks of finished goods, can easily get more factors of production, and have more time to respond.
  4. Manufactured goods usually have more elastic supply than primary products, such as crops and minerals, which take a long time to grow or extract.

Worked example

The price of a toy rises from $20 to $25 and the quantity supplied rises from 1000 to 1500. Calculate the PES.

  1. Percentage change in price = 5 ÷ 20 × 100 = 25%.
  2. Percentage change in quantity supplied = 500 ÷ 1000 × 100 = 50%.
  3. PES = 50 ÷ 25 = 2. It is greater than 1, so supply is elastic.

Tips and tricks

  • PES is positive, because price and quantity supplied move the same way. If you get a negative answer, check your working.
  • Time is the factor to mention first: supply is nearly always more elastic in the long run.
5 questions, about 2 minutes.

It lands in your notebook with its questions as flashcards.

Price elasticity of supply: 5 questions and answers

These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.

  1. A PES of 0.4 means that supply is
    • inelastic (the answer)
    • elastic
    • unitary
    • perfectly elastic

    0.4 is less than 1.

  2. The price of a good rises by 10% and the quantity supplied rises by 15%. What is the PES?
    • 0.67
    • 1.5 (the answer)
    • 5
    • 25

    15 ÷ 10 = 1.5.

  3. Which is likely to have the most price inelastic supply in the short run?
    • printed T-shirts
    • bread
    • rubber from rubber trees (the answer)
    • plastic toys

    A rubber tree takes years to grow, so output cannot rise quickly.

  4. Which makes supply more price elastic?
    • factories working at full capacity
    • large stocks of the finished product (the answer)
    • raw materials that are hard to obtain
    • a long production time

    Stocks can be sold at once when the price rises.

  5. A vertical supply curve shows supply that is
    • perfectly elastic
    • unitary
    • perfectly inelastic (the answer)
    • elastic

    The quantity supplied is the same whatever the price: PES is 0.

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