Price elasticity of supply (PES)
Price elasticity of supply
- PES measures how much quantity supplied changes when the price changes.
$$\text{PES} = \frac{\%\ \text{change in quantity supplied}}{\%\ \text{change in price}}$$
- elastic if PES > 1, inelastic if PES < 1.
Practice
Quantity supplied rises 6% when price rises 3%. What is the PES?
PES = %ΔQs ÷ %ΔP = 6 ÷ 3 = 2 (elastic).
What makes supply elastic
- time — more elastic over a long time,
- spare capacity — unused machines/workers → raise output fast,
- stocks — goods in store can be sold quickly,
- ease of switching factors into making the good.
- Farm goods are often inelastic in the short run (crops take a season).
Practice
Which make supply more elastic? (Choose all that apply.)
Spare capacity, stocks and time raise PES; crops that take a season make supply inelastic short-run.
Practice
Farm goods often have inelastic supply in the short run.
Crops take a season to grow, so farmers cannot quickly raise output when prices rise.
You've got it
Key idea
- PES = %ΔQs ÷ %ΔP; >1 elastic, <1 inelastic
- elastic with time, spare capacity, stocks, easy factor switching
- farm goods are inelastic short-run (crops need a season)