PES

AQA also says:

Spec content: Price elasticity of supply; Factors affecting PES; Measuring PES.

Students should be able to: understand elastic vs inelastic supply; apply the PES formula; explain factors affecting PES; explain implications for producers and consumers.

What is PES?

Price elasticity of supply (PES) measures how responsive quantity supplied is to a change in price.

PES = % change in quantity supplied ÷ % change in price

PES is almost always positive (supply curves slope upward — price rises → Qs rises).

  • PES > 1 → price elastic supply: producers respond significantly to price changes.
  • PES < 1 → price inelastic supply: producers cannot respond much to price changes.
  • PES = 0 → perfectly inelastic: supply is fixed regardless of price (e.g. land in a specific location).

Factors Affecting PES

  • Spare capacity — firms with idle machinery can increase output quickly → elastic supply.
  • Ability to store stocks — storable goods (tinned food) can release inventory when prices rise → elastic. Perishables (fresh fish) cannot → inelastic.
  • Time period — supply is more elastic in the long run as capacity can be expanded, new workers trained, and new firms enter.
  • Length of production process — short processes (some manufactures) → more elastic. Long processes (wine, housing construction, crops) → inelastic.
  • Factor mobility — if land, labour, capital can switch easily between uses → more elastic supply.

Implications of PES

For producers: Elastic supply allows firms to exploit price rises by quickly expanding output and capturing profit. Inelastic supply means profit opportunities from price rises are limited by capacity constraints.

For consumers: When supply is inelastic (housing), a surge in demand pushes prices up sharply with little increase in supply — consumers face higher prices and little more availability. Elastic supply limits price rises because producers can quickly meet increased demand.

 Key Takeaways

  • PES = %ΔQs ÷ %ΔP — positive value.
  • PES > 1: elastic. PES < 1: inelastic.
  • Key determinants: spare capacity, storability, time period, production length, factor mobility.
  • Supply is generally more elastic in the long run than the short run.
Students should be able to understand: that changes in price don't always cause equivalent changes in supply; the factors that affect PES; the difference between elastic and inelastic supply; that PES = %ΔQs ÷ %ΔP and be able to perform calculations; the implications of PES for producers and consumers.