Calculation of PES using the formula

Price Elasticity of Supply (PES) 📦

Price elasticity of supply measures how responsive the quantity supplied of a good is to a change in its price. It helps producers and governments understand how quickly suppliers can adjust output when market conditions change.

The Formula

$$PES = \frac{\%\Delta Q_s}{\%\Delta P}$$

Where:
$\%\Delta Q_s$ = percentage change in quantity supplied
$\%\Delta P$ = percentage change in price

How to Calculate PES – Step‑by‑Step

1. Find the initial and new quantity supplied ($Q_{s1}$ and $Q_{s2}$).
2. Find the initial and new price ($P_1$ and $P_2$).
3. Calculate the percentage change in quantity supplied: $$\%\Delta Q_s = \frac{Q_{s2} - Q_{s1}}{Q_{s1}} \times 100$$
4. Calculate the percentage change in price: $$\%\Delta P = \frac{P_2 - P_1}{P_1} \times 100$$
5. Divide the two percentages to get PES: $$PES = \frac{\%\Delta Q_s}{\%\Delta P}$$

Worked Example

A farmer supplies 200 kg of tomatoes at $2 per kg. When the price rises to $3 per kg, the farmer increases supply to 350 kg.

• $Q_{s1}=200$ kg, $Q_{s2}=350$ kg
• $P_1= \$2$, $P_2= \$3$

Percentage change in quantity supplied: $$\%\Delta Q_s = \frac{350-200}{200}\times100 = \frac{150}{200}\times100 = 75\%$$

Percentage change in price: $$\%\Delta P = \frac{3-2}{2}\times100 = \frac{1}{2}\times100 = 50\%$$

Price elasticity of supply: $$PES = \frac{75\%}{50\%} = 1.5$$

Since PES > 1, supply is elastic – the farmer can increase output relatively easily when price rises.

Interpreting PES Values

Quick Check – Try It Yourself!

A manufacturer produces 500 units of a gadget at $10 each. If the price rises to $12, output increases to 650 units. Calculate the PES and state whether supply is elastic, inelastic or unit elastic.

Hint: Use the steps above.