Elasticity of supply (PES)

Unit 2, Microeconomics

Price elasticity of supply (PES)

A measure of the responsiveness of the quantity supplied of a good or service to a 1%

change in its price, ceteris paribus.

(Price) elastic supply

Where a change in the price of a good or service leads to a proportionately larger change

in the quantity supplied of the good or service in the same direction. (PES is greater than

one.)

(Price) inelastic supply

Where a change in the price of a good or service leads to a proportionately smaller

change in the quantity supplied of the good or service in the same direction. (PES is less

than one.)

Unitary elastic supply

Occurs when a change in the price of a good or service leads to an equal proportional

change in the quantity supplied of the good or service (PES = 1).

Perfectly elastic supply

Occurs with a horizontal supply curve signifying that any amount can be offered at a

particular price. (PES is infinite.)

Perfectly inelastic supply

Where a change in the price of a good or service leads to no change in the quantity

supplied of the good or service. (PES is equal to zero.)

Formula PES