How strongly does the quantity supplied respond when the price changes?
Define price elasticity of supply, calculate it, and explain the factors that determine it
A clear O-Level answer on price elasticity of supply. The PES formula, how to tell elastic from inelastic supply, the factors that determine it including the time period, and why some goods cannot respond quickly to price.
Reviewed by: AI editorial process; not yet individually human-reviewed
Have a quick question? Jump to the Q&A page
Jump to a section
What this dot point is asking
The syllabus wants you to define price elasticity of supply, calculate it, and explain the factors that determine it, especially the time period. The big idea is that the law of supply tells us quantity supplied rises when price rises, but elasticity tells us by how much, which depends on how easily and quickly producers can change their output.
The answer
What price elasticity of supply measures
The formula
Because price and quantity supplied move in the same direction, PES is normally positive.
Elastic, inelastic and unit elastic supply
The size of PES tells us the type of supply:
- Price elastic supply: PES greater than . Quantity supplied changes by a larger percentage than price. Producers respond strongly.
- Price inelastic supply: PES less than . Quantity supplied changes by a smaller percentage than price. Producers respond weakly.
- Unit elastic supply: PES equal to . Quantity supplied changes by the same percentage as price.
The factors that determine PES
Supply is more elastic when producers can change output easily and quickly:
- Time period. This is the most important factor. In the short run, firms have fixed factories and cannot change output much, so supply is inelastic. Given more time, they can build capacity and respond fully, so supply becomes elastic.
- Spare capacity. If a firm has unused machines and idle workers, it can raise output quickly, making supply elastic. If it is already at full capacity, supply is inelastic.
- Availability of stocks. If a good can be stored, firms can release stock when price rises, making supply elastic. Perishable goods cannot be stored, so their supply is inelastic.
- Ease of switching production. If a firm can easily switch resources from another product, supply is elastic. If switching is hard, supply is inelastic.
Why some goods have very inelastic supply
Goods that take a long time to produce, such as crops, or that cannot be increased at all in the short run, such as the number of hotel rooms in a city, have very inelastic supply. A rise in price brings little extra quantity quickly, so the price effect of a demand change is large.
Examples in context
Example 1. Agricultural supply is inelastic in the short run. Crops take a growing season to produce, so when prices rise, farmers cannot increase the harvest immediately. Supply is therefore inelastic in the short run, which is why farm prices can swing sharply when demand or weather changes. Over several seasons, farmers can plant more, so supply becomes more elastic.
Example 2. Manufactured goods with spare capacity. A factory making smartphones that has idle production lines can raise output quickly when price rises, so its supply is relatively elastic. The ability to use spare capacity, and to store finished phones, lets manufactured goods respond to price far faster than crops or hotel rooms.
Try this
Cue. State the formula for price elasticity of supply. PES equals the percentage change in quantity supplied divided by the percentage change in price.
Cue. Explain why the supply of a perishable good is usually inelastic. A perishable good cannot be stored, so producers cannot build up stock to release when price rises, and output cannot be raised quickly, making supply respond little to price.
Cue. Explain why supply is generally more elastic in the long run than in the short run. Given more time, firms can build extra capacity, hire more workers and bring in new resources, so the quantity supplied can respond much more fully to a price change.
Exam-style practice questions
Practice questions written in the style of SEAB exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
Original4 marksThe price of a good rises by and the quantity supplied rises by . Calculate the price elasticity of supply and state whether supply is elastic or inelastic.Show worked answer →
A 4 mark calculation rewards the formula, the value, and the correct judgement.
Price elasticity of supply (PES): .
The value is , which is less than , so supply is price inelastic: quantity supplied changes by a smaller percentage than price.
Markers reward the correct formula and value and the judgement that a value below means inelastic supply. Note that PES is normally positive, because price and quantity supplied move in the same direction.
Original6 marksExplain why the supply of fresh vegetables tends to be price inelastic in the short run but more elastic in the long run.Show worked answer →
A 6 mark question rewards the time-period reasoning and the link to production conditions.
Short run. In the short run, farmers cannot quickly grow more vegetables: crops take time to plant and harvest, and there is limited spare land and labour. So even if the price rises, the quantity supplied can rise only a little, making supply inelastic.
Long run. Given more time, farmers can plant more, bring extra land into use, hire more workers and invest in greenhouses. The quantity supplied can then respond much more to a higher price, so supply becomes more elastic.
Markers reward the key idea that the more time producers have to adjust output, the more elastic supply becomes, applied clearly to vegetable farming.
Related dot points
- Define price elasticity of demand, calculate it, and explain the factors that determine it
A clear O-Level answer on price elasticity of demand. The PED formula, how to tell elastic from inelastic demand, the factors that determine it, and how PED links to a firm's total revenue.
- Define income elasticity and cross elasticity of demand, calculate them, and interpret their signs
A clear O-Level answer on income and cross elasticity of demand. The two formulas, how the sign of YED shows a normal or inferior good, and how the sign of XED shows substitutes or complements.
- Explain how equilibrium price and quantity are determined, and how shifts in demand and supply change them
A clear O-Level answer on market equilibrium. How shortages and surpluses push price to equilibrium, the four single-shift cases, and how to analyse a change in price and quantity step by step.
- Define supply and the law of supply, and explain why the supply curve slopes upward
A clear O-Level answer on supply and the law of supply. What supply means, why quantity supplied rises with price, the profit and rising-cost reasons for the upward slope, and how the supply curve is drawn.
- Apply elasticity to pricing decisions, taxation, and the size of price changes in real markets
A clear O-Level answer on applying elasticity. How firms use PED to set prices, how governments use it to choose what to tax, and how elasticity decides whether a shift changes mostly price or mostly quantity.