Topic 1.2.5: Price Elasticity of Supply (PES)
Welcome to your revision notes for Elasticity of Supply, a core topic in Sub-theme 1.2: How markets work for Pearson Edexcel A Level Economics A (9EC0). When the market price of a product rises, producers naturally want to supply more to maximize profit. But how quickly and easily can they actually increase production? That is exactly what Price Elasticity of Supply measures. Don't worry if calculations or diagrams feel tricky at first—we will break down every concept step-by-step!
---1. What is Price Elasticity of Supply (PES)?
Price Elasticity of Supply (PES) is defined as a measure of the responsiveness of the quantity supplied of a good or service to a change in its price.
The Law of Supply and the Sign of PES:
Unlike Price Elasticity of Demand (which is negative because price and demand move in opposite directions), PES is typically positive. This is because of the direct relationship between price and quantity supplied: when the price of a good rises (\(+ \Delta P\)), firms find production more profitable and expand their quantity supplied (\(+ \Delta Q_s\)). Therefore, your final PES value will almost always be a positive number.
Key Takeaway: PES tells us how flexible a producer is when prices change. If price goes up by \(10\%\), does the firm quickly supply \(20\%\) more (very responsive), or can it only manage \(2\%\) more (sluggish response)?
---2. The PES Formula and Calculations
The Core Formula
To calculate PES, we divide the percentage change in quantity supplied by the percentage change in price:
\(\text{PES} = \frac{\% \Delta Q_s}{\% \Delta P} = \frac{\% \text{ change in quantity supplied}}{\% \text{ change in price}}\)
Calculating Percentage Changes
Remember how to calculate percentage change from GCSE Maths:
\(\% \Delta = \frac{\text{New Value} - \text{Original Value}}{\text{Original Value}} \times 100\)
Step-by-Step Worked Example
Scenario: The market price of a smartphone case increases from £\(10\) to £\(12\). In response, a manufacturer increases its weekly production from \(1,000\) units to \(1,300\) units. Let's calculate the PES.
Step 1: Calculate the percentage change in price (\(\% \Delta P\))
\(\% \Delta P = \frac{12 - 10}{10} \times 100 = \frac{2}{10} \times 100 = +20\%\)
Step 2: Calculate the percentage change in quantity supplied (\(\% \Delta Q_s\))
\(\% \Delta Q_s = \frac{1,300 - 1,000}{1,000} \times 100 = \frac{300}{1,000} \times 100 = +30\%\)
Step 3: Apply the PES formula
\(\text{PES} = \frac{\% \Delta Q_s}{\% \Delta P} = \frac{+30\%}{+20\%} = +1.5\)
Interpretation: Because \(\text{PES} = 1.5\) (which is greater than \(1\)), supply is price elastic. For every \(1\%\) increase in price, the firm increases its quantity supplied by \(1.5\%\).
Memory Trick: Always put Quantity on Top and Price at the Bottom. Think of "Q over P" (like Quiche over Pie) to make sure you never invert the formula on exam day!
---3. Numerical Values and Supply Curves
Depending on the calculated value of PES, supply is classified into five distinct categories. Each has a unique graphical appearance:
1. Perfectly Inelastic Supply (\(\text{PES} = 0\))
What it means: A change in price leads to no change at all in quantity supplied (\(\% \Delta Q_s = 0\)). Producers cannot supply any more units regardless of how high the price climbs.
Curve Shape: A vertical line parallel to the price axis.
Real-World Example: Tickets to a sold-out stadium concert on the night of the show, or original artwork by Leonardo da Vinci.
2. Relatively Inelastic Supply (\(0 < \text{PES} < 1\))
What it means: The percentage change in quantity supplied is smaller than the percentage change in price (e.g., price rises by \(10\%\), but supply only expands by \(4\%\)).
Curve Shape: A steep upward-sloping line. For a linear supply curve, it intersects the positive horizontal quantity axis (\(Q\)-axis).
Real-World Example: Agricultural crops in the short term (it takes months to grow more wheat or potatoes).
3. Unit Elastic Supply (\(\text{PES} = 1\))
What it means: The percentage change in quantity supplied is exactly equal to the percentage change in price (e.g., a \(10\%\) rise in price leads to an exact \(10\%\) rise in quantity supplied).
Curve Shape: Any straight-line supply curve that passes directly through the origin (\(0,0\)).
4. Relatively Elastic Supply (\(1 < \text{PES} < \infty\))
What it means: The percentage change in quantity supplied is larger than the percentage change in price (e.g., price rises by \(10\%\), and supply surges by \(25\%\)).
Curve Shape: A flatter upward-sloping line. For a linear supply curve, it intersects the positive vertical price axis (\(P\)-axis).
Real-World Example: Mass-produced manufactured goods like plastic pens or printed T-shirts.
5. Perfectly Elastic Supply (\(\text{PES} = \infty\))
What it means: Producers will supply an infinite amount at a specific price, but if the price drops even slightly below this level, quantity supplied drops to zero.
Curve Shape: A horizontal line parallel to the quantity axis.
Summary of Curve Intercepts for Linear Supply Curves:
• Crosses the vertical Price axis (\(P\)-axis) \(\implies \text{PES} > 1\) (Elastic)
• Passes directly through the Origin \((0,0)\) \(\implies \text{PES} = 1\) (Unit Elastic)
• Crosses the horizontal Quantity axis (\(Q\)-axis) \(\implies \text{PES} < 1\) (Inelastic)
4. Determinants of Price Elasticity of Supply
Why are some goods elastic in supply while others are inelastic? In Pearson Edexcel Economics A, you must be able to evaluate the six key determinants that influence PES:
1. Spare Production Capacity
If a factory is currently operating at only \(60\%\) of its total capacity, it has idle machines and available space. If market price rises, it can immediately switch on machines and hire extra shifts to boost output (\(\text{PES}\) is elastic). Conversely, if a firm is operating at \(100\%\) full capacity, it cannot expand output quickly (\(\text{PES}\) is inelastic).
2. Availability and Level of Stocks / Inventories
Firms that hold large stockpiles of finished goods or components in warehouses can release them to the market instantly when prices rise (\(\text{PES}\) is elastic). However, perishable goods (like fresh strawberries, milk, or cut flowers) cannot be stored for long periods, making their supply inelastic.
3. Time Period (Momentary, Short Run, and Long Run)
Time is one of the most critical determinants of PES:
• Momentary / Immediate Run: Supply is fixed because producers cannot change any inputs on the spot (\(\text{PES} = 0\)).
• Short Run: Defined economically as the time period where at least one factor of production is fixed (e.g., factory size or heavy capital machinery). Output can only increase by adding variable factors like overtime labour, making supply relatively inelastic.
• Long Run: The time period where all factors of production are variable. Firms can build new factories, install new technology, and new competitor firms can enter the market, making supply relatively elastic.
4. Mobility / Substitutability of Factors of Production
If workers and machinery can easily be switched from producing one good to another (occupational and geographical mobility), supply is elastic. For example, a commercial printing company that can effortlessly switch from printing leaflets to printing posters has elastic supply. If specialised, non-transferable machinery or highly skilled technicians are needed, supply is inelastic.
5. Length of Production Lag / Lead Time
If a product takes months or years to make (e.g., nuclear power stations, passenger aircraft, building ships, or farming crops), supply cannot react quickly to a sudden price spike (\(\text{PES}\) is inelastic). If products have very short manufacturing lead times (e.g., digital software downloads or simple plastic toys), supply is elastic.
6. Barriers to Entry
If an industry has high startup costs, strict government licensing, or heavy patent protection, it is difficult for new suppliers to enter the market when prices rise, keeping supply inelastic. If entry barriers are low, new firms flood in to take advantage of higher prices, making overall market supply more elastic.
5. Common Pitfalls and Examiner Warnings
Don't lose easy marks! Watch out for these frequent mistakes highlighted in Edexcel examiner reports:
Pitfall 1: Inverting the Formula
Writing \(\frac{\% \Delta P}{\% \Delta Q_s}\) instead of \(\frac{\% \Delta Q_s}{\% \Delta P}\). Remember: quantity change is always on the top.
Pitfall 2: Giving PES a Negative Sign
Do not confuse Price Elasticity of Supply (PES) with Price Elasticity of Demand (PED). Because price and quantity supplied have a positive relationship, PES must be positive.
Pitfall 3: Confusing Absolute Changes with Percentage Changes
If price rises from £\(50\) to £\(60\), the absolute change is £\(10\), but the percentage change is \(\frac{10}{50} \times 100 = 20\%\). You must always calculate percentages first before calculating PES.
Pitfall 4: Conflating Curve Shifts with Elasticity
PES measures a movement along an existing supply curve in response to a price change. It does not represent a shift of the entire supply curve (which is caused by non-price factors like taxation, subsidies, or production costs).
Pitfall 5: Defining the Short Run as a Specific Calendar Time
Never define the economic short run as "a few weeks" or "six months". In Economics A, the short run is strictly defined as the period in which at least one factor of production is fixed.
6. Quick Chapter Review
• Definition: Responsiveness of quantity supplied to a change in price (\(\text{PES} = \frac{\% \Delta Q_s}{\% \Delta P}\)).
• Sign: Positive value (upward-sloping supply curve).
• \(\text{PES} = 0\): Perfectly inelastic (Vertical curve).
• \(0 < \text{PES} < 1\): Relatively inelastic (Steep curve; intercepts \(Q\)-axis).
• \(\text{PES} = 1\): Unit elastic (Straight line passing through the Origin).
• \(1 < \text{PES} < \infty\): Relatively elastic (Flat curve; intercepts \(P\)-axis).
• \(\text{PES} = \infty\): Perfectly elastic (Horizontal curve).
• Elasticity increases when: There is spare capacity, high stock levels, flexible/mobile factors, short production lead times, low barriers to entry, and longer time horizons (Long Run).