Drawing and interpretation of supply curve diagrams to show different PES

The Allocation of Resources – Price Elasticity of Supply (PES) 📈

What is Price Elasticity of Supply?

Price Elasticity of Supply (PES) measures how much the quantity supplied of a good changes when its price changes. It tells us how responsive producers are to price changes.

Mathematically, it is expressed as:

$E_s = \dfrac{\% \Delta Q_s}{\% \Delta P}$

Where $\% \Delta Q_s$ is the percentage change in quantity supplied and $\% \Delta P$ is the percentage change in price.

How to Calculate PES

1. Find the initial price ($P_1$) and quantity supplied ($Q_1$).
2. Find the new price ($P_2$) and new quantity supplied ($Q_2$).
3. Calculate the percentage changes:
   • $\% \Delta P = \dfrac{P_2 - P_1}{P_1} \times 100\%$
   • $\% \Delta Q_s = \dfrac{Q_2 - Q_1}{Q_1} \times 100\%$
4. Divide the percentage change in quantity by the percentage change in price to get PES.

Different Types of Supply Elasticity

Drawing Supply Curves

• Plot price on the vertical axis and quantity supplied on the horizontal axis.
• For a perfectly elastic supply, draw a horizontal line at the price level where producers are willing to supply any quantity.
• For an elastic supply, draw a steep upward‑sloping line that rises quickly as price increases.
• For a unit elastic supply, the slope is moderate, rising at a constant rate.
• For an inelastic supply, the line is steep, indicating little change in quantity even if price rises.
• For a perfectly inelastic supply, draw a vertical line at the fixed quantity.

Interpreting Diagrams with Different PES

Let’s use a simple example of a toy factory.

• 📦 Elastic Supply: If the price of toys rises from $10 to $12, the factory can quickly add more workers and machines, increasing output from 100 to 150 units. PES > 1.
• 🏗️ Inelastic Supply: If the price rises from $10 to $12, the factory has limited space and can only increase output from 100 to 110 units. PES < 1.
• 🛠️ Perfectly Elastic Supply: Imagine a market where any price above $10 triggers unlimited production because the factory has spare capacity. The supply curve is a flat line at $10.
• 🧱 Perfectly Inelastic Supply: Think of a handcrafted item that can only be produced in a single batch of 50 units, regardless of price. The supply curve is a vertical line at 50 units.

Key Takeaways for 15‑Year‑Olds

• 💡 PES tells us how fast producers can respond to price changes.
• 🔍 A higher PES means a steeper supply curve.
• 🧩 Remember the analogy: Water faucet – the more you turn the knob (price), the more water (quantity) comes out if the faucet is elastic.
• 📚 Practice drawing supply curves for different PES values to see how the shape changes.
• 🤝 Understanding PES helps explain real‑world situations like why some products become scarce when prices rise.