Elasticity of supply — Edexcel A-Level Economics A
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Elasticity of supply explained
Price elasticity of supply (PES) measures how responsive quantity supplied is to a change in price.
Read the full explanation
It is calculated as the percentage change in quantity supplied divided by the percentage change in price, giving a value that is normally positive because higher prices usually encourage firms to supply more. Supply is elastic when PES is greater than 1, meaning quantity supplied changes proportionally more than price; it is inelastic when PES is less than 1, so quantity supplied responds proportionally less than price. A value of exactly 1 is unit elastic, and a value of 0 is perfectly inelastic. For example, if price rises by 10% and quantity supplied rises by 25%, PES is 2.5, so supply is elastic. Determinants include spare capacity, the time period, the mobility of factors of production and the ease of storing stock.
Your focus
- Define price elasticity of supply and state its formula.
- Classify a given PES value as elastic, inelastic, unit elastic or perfectly inelastic.
- Explain how at least one determinant affects the elasticity of supply in a named market.
Elasticity of supply exam tips
Marking Points
- Defines PES as the responsiveness of quantity supplied to a change in price, expressed as percentage change in quantity supplied divided by percentage change in price.
- States that PES is normally positive because a higher price gives firms an incentive to supply more.
- Distinguishes elastic supply (PES greater than 1) from inelastic supply (PES less than 1), with unit elastic at exactly 1 and perfectly inelastic at 0.
- Explains at least one determinant of PES, such as spare capacity, the time period, factor mobility or storability of stock.
- Applies the concept to a numerical or contextual example, for instance a 10% price rise raising quantity supplied by 25% giving PES of 2.5.
Examiner Tips
- 💡Learn the formula as percentage change in quantity supplied divided by percentage change in price, and always check the sign is positive.
- 💡Practise classifying values: greater than 1 elastic, less than 1 inelastic, exactly 1 unit elastic, 0 perfectly inelastic.
- 💡Link each determinant to a real market, such as housing supply being inelastic in the short run because construction takes time.
Common Mistakes
- Confusing PES with price elasticity of demand: PES relates to quantity supplied and is normally positive, whereas PED relates to quantity demanded and is normally negative.
- Assuming a high price means elastic supply: elasticity depends on the responsiveness of quantity supplied to a price change, not on the price level itself.
- Treating a PES value of 0.5 as elastic: any value below 1 is inelastic, so 0.5 means quantity supplied responds proportionally less than price.
- Ignoring the time period: supply is usually more inelastic in the short run because firms cannot easily change capacity, and more elastic in the long run.