Price Elasticity of Supply

What is the price elasticity of supply?

Price elasticity of supply refers to the responsiveness of quantity supplied to a change in price. Also denoted as PES, it is calculated by dividing the percentage change in quantity supplied by the percentage change in price.

Interpreting PES

When PES is higher than 1, the supply for that product/service is considered relatively elastic.

When PES is lower than 1, the supply for that product/service is considered relatively inelastic.

When PES is 1, supply for the product/service is considered unitary elastic.

When PES is 0, the supply for that product/service is considered perfectly inelastic.

When PES is infinite, the supply for that product/service is considered perfectly elastic.

Determinants of PES

• Mobility of resources-  The more mobile the resources, the greater the PES
• Unused capacity- The more unused capacity, the greater the PES
• Storage capacity- The greater the storage capacity, the higher the PES
• Time to alter supply- The higher the time to alter supply, the greater the PES