Introduction

Just as demand responds to price changes, supply can also respond to changes in price. The degree to which producers adjust their supply when prices change is measured using Price Elasticity of Supply (PES).

Students studying Cambridge O Level Economics 2281 and Cambridge IGCSE Economics 0455 learn how elasticity helps explain producer behavior and market adjustments.

Understanding PES helps businesses and economists predict how supply will change when prices increase or decrease.

What is Price Elasticity of Supply?

Price Elasticity of Supply measures the responsiveness of quantity supplied to a change in price.

In simple terms, it shows how easily producers can increase or decrease production when prices change.

PES Formula

The formula used to calculate price elasticity of supply is:

Writing

PES = Percentage change in quantity supplied
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Percentage change in price

What is this?

The value of PES shows how elastic or inelastic supply is.

Types of Price Elasticity of Supply

Elastic Supply

Supply is elastic when:

PES > 1

This means producers can easily increase production when prices rise.

Examples:

• Manufactured goods

• Clothing production

• Electronics

Firms can quickly adjust output.

Inelastic Supply

Supply is inelastic when:

PES < 1

This means producers cannot easily increase production when prices rise.

Examples:

• Agricultural products

• Natural resources

• Rare minerals

These goods require time or limited resources.

Unit Elastic Supply

Supply is unit elastic when:

PES = 1

This means the percentage change in supply equals the percentage change in price.

Factors Affecting Price Elasticity of Supply

Several factors determine how elastic supply is.

Time Period

Supply becomes more elastic over time because producers can adjust production.

Example:

Farmers may grow more crops next season if prices increase.

Spare Capacity

If firms have unused resources, they can increase production quickly, making supply more elastic.

Availability of Raw Materials

If raw materials are easily available, firms can expand production more easily.

Mobility of Factors of Production

If labour and capital can move easily between industries, supply tends to be more elastic.

Importance of PES

Price elasticity of supply helps:

✔ Businesses predict production changes
✔ Governments analyze market responses
✔ Economists understand supply behavior
✔ Firms make better production decisions

It is particularly important when analyzing taxes, subsidies, and price controls.

Exam Tips for Students

Students studying O Level Economics (2281) and IGCSE Economics (0455) should be able to:

✔ Define price elasticity of supply
✔ Apply the PES formula
✔ Identify elastic and inelastic supply
✔ Explain factors affecting elasticity

Elasticity diagrams and calculations often appear in economics exam questions.

Learn Economics with IVY Online

At IVY Online, students preparing for Cambridge Economics exams can access:

• Step-by-step elasticity explanations

• Diagram tutorials

• Past paper practice

• Exam-focused revision strategies

This helps students develop strong conceptual understanding.