PES & supply responsiveness

Price elasticity of supply (PES)

Measures how responsive quantity supplied is to a change in price.

PES formula

Percentage change in quantity supplied divided by percentage change in price.

Perfectly inelastic supply

PES = 0; quantity supplied does not respond to price.

Inelastic supply

0 < PES < 1; quantity supplied responds proportionally less than price.

Unit elastic supply

PES = 1; percentage changes in quantity supplied and price are equal in magnitude.

Elastic supply

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

Perfectly elastic supply

PES is infinite; the supply curve is horizontal.

Why supply is more elastic with time

Firms can adjust production, buy machinery, train workers, and expand facilities.

Spare capacity and PES

More spare capacity generally makes supply more elastic.

PES worked example

Price rises 25% and quantity supplied rises 12.5%; PES = 12.5 ÷ 25 = 0.5, inelastic supply.