2.3 Price Elasticity of Supply (PES)

2026 📋 Syllabus Objectives

By the end of these notes, you will be able to:

  1. Define price elasticity of supply (PES)
  2. Write and use the formula for PES, and carry out calculations
  3. Understand the significance of the size and sign of the PES coefficient
  4. Identify and explain the factors that affect PES
  5. Explain the implications of PES for how quickly and easily firms can react to changes in market conditions

1. Definition of Price Elasticity of Supply (PES)

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Price Elasticity of Supply (PES) measures how responsive the quantity supplied of a good is to a change in its price.

In simpler terms: if the price of a product goes up, by how much will producers increase the amount they supply?

Key idea: Not all suppliers can respond to a price change quickly or easily. PES tells us how much and how fast supply changes when price changes.

For example, a farmer growing strawberries cannot instantly grow more strawberries just because the price rises — it takes time for crops to grow. But a factory making plastic cups might be able to increase production quite quickly. PES helps us measure this difference.

2. Formula for PES and How to Calculate It

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The Formula

PES=% change in quantity supplied% change in price\text{PES} = \frac{\% \text{ change in quantity supplied}}{\% \text{ change in price}}

You can also write it as:

PES=%ΔQs%ΔP\text{PES} = \frac{\% \Delta Q_s}{\% \Delta P}

Where:

  • % ΔQs = percentage change in quantity supplied
  • % ΔP = percentage change in price

How to Calculate Percentage Changes

% change=New Value−Original ValueOriginal Value×100\% \text{ change} = \frac{\text{New Value} - \text{Original Value}}{\text{Original Value}} \times 100

Step-by-Step Worked Example

Question: The price of a good rises from 10 dollars to 13 dollars. As a result, the quantity supplied increases from 200 units to 260 units. Calculate the PES.

Step 1 — Calculate % change in price:

%ΔP=13−1010×100=30%\% \Delta P = \frac{13 - 10}{10} \times 100 = 30\%

Step 2 — Calculate % change in quantity supplied:

%ΔQs=260−200200×100=30%\% \Delta Q_s = \frac{260 - 200}{200} \times 100 = 30\%

Step 3 — Apply the formula:

PES=30%30%=+1\text{PES} = \frac{30\%}{30\%} = +1

Another Worked Example (Using PES to find new quantity)

Question: PES = +2. Price increases by 30%. Original quantity supplied = 200 units. Find the new quantity supplied.

Step 1 — Use the formula to find % ΔQs:

$$2 = \frac{% \Delta Q_s}{30%} \Rightarrow % \Delta Q_s = 2 \times 30 = 60%$$

Step 2 — Calculate new quantity:

Q2−200200×100=60\frac{Q_2 - 200}{200} \times 100 = 60

Q2−200=120Q_2 - 200 = 120

Q2=320 unitsQ_2 = 320 \text{ units}

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