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Chapter 12 - Price Elasticity of Supply (PES) : IGCSE Economics (0450)

This document defines price elasticity of supply and how to calculate it using percentage changes in quantity supplied and price. It provides examples of elastic and inelastic supply and discusses the determinants of price elasticity of supply such as time period, spare capacity, and technology. The implications for consumers, producers and government decision making are also outlined. Practice questions are provided to help understand how to calculate price elasticity from supply scenarios.

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467 views11 pages

Chapter 12 - Price Elasticity of Supply (PES) : IGCSE Economics (0450)

This document defines price elasticity of supply and how to calculate it using percentage changes in quantity supplied and price. It provides examples of elastic and inelastic supply and discusses the determinants of price elasticity of supply such as time period, spare capacity, and technology. The implications for consumers, producers and government decision making are also outlined. Practice questions are provided to help understand how to calculate price elasticity from supply scenarios.

Uploaded by

JamesLeo 5734
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© © All Rights Reserved
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Chapter 12 - Price Elasticity of

Supply (PES)
IGCSE Economics (0450)
Price Elasticity of Supply
• Definition: a measure of the responsiveness of the quantity supplied to a
change in price
• Formula: PES = % change in Quantity Supplied / % change in Price
= %🔺 Qs / %🔺 P
Example
Qs rise from 100 (Q1) to 130 (Q2) as a result of price increasing from
$10 (P1) to $12 (P2).
%🔺 in Qs = (change in supply / original Qs) x100 = 30/100)x100 = 30%
%🔺 in P = (change in price / original price) x 100 = ($2/$10)x100 = 20%
PES = 30% / 20% = 1.5 (elastic)
Elastic vs Inelastic Supply
• Elastic supply: when Qs changes by a greater percentage than the change in P (PES >1).
• Inelastic supply: when Qs changes by a smaller percentage than the change in P
(PES<1). 
Other Degrees of PES
1. PERFECTLY ELASTIC SUPPLY: when a change in price causes a
complete change in the quantity supplied (PES = infinity)
Other Degrees of PES
2. UNIT PES: when a change in price causes an equal percentage change
in the quantity supplied (PES = 1)
Other Degrees of PES
3. PERFECTLY INELASTIC SUPPLY: when a change in price has no
effect on the quantity supplied (PES = 0)
Determinants of Price Elasticity of
Supply
• The time period (time taken to produce it)
• Note: Supply of many agricultural products is inelastic because it takes time for crops to grow and
animals to mature, and many cannot be stored for a long time. But the supply of (e.g. apples) in one
country (area) can be elastic if apples can be moved from one place to another in response to a
demand & price.
• The degree of spare productive capacity
• The level of stocks
• The number of producers in the industry
• The ease and cost of factor substitution
Changes in PES
• The supply of most products become more elastic as time period increases
because producers will have more time to adjust their supply.
• Advances in technology also makes the supply more elastic.
Implications of PES for Decision Making
• Consumers benefit from supply being elastic because it means the supply is responsive to consumer
demand. Qs will rise by a greater percentage than the change in P.
• If government wants to encourage more output and consumption of a product, they are likely to be more
successful giving a subsidy to producers if supply is elastic.
• Producers want their supply to be as elastic as possible, so profits will be higher if they can be quicker
and more fully to adjust the supply in response to changes in demand. Firms will try to make ways to make
supply elastic by:
• Keeping large volume of stocks
• Creating spare capacity
• Adopting/upgrading latest technology
• Improving storage systems, etc.
Practice Questions
1. A fall in price from $5 to $4 causes supply to contract from 10,000 to 4,000 (Gerald, Matthew)
2. Supply extends from 200 to 210 when price rises to $10 to $14 (Gaurav, Aurel)
3. An increase in price from $4000 to $4400 results in extension of supply from 80 to 90 (Vindra, Adriel)
4. Market price of cherries falls from $5 per kg to $4 per kg, which causes the supply to fall from 10,000
kg to 9,500 kg (Rajakin, Jasmine)
5. Market price of lemons increases from $4 per kg to $4.8 kg causing quantity supplied to rise from
10,000 kg to 10, 500 kg (James)
6. Market price of beans increases from 42 per kg to $2.20 per kg causing quantity supplied to rise from
10,000 kg to 10,500 kg (Reynard, Rama)

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