factors affecting price elasticity of supply
📈 Price Elasticity of Supply (PES) – Cambridge A-Level Economics 9708
What is Price Elasticity of Supply?
PES measures how much the quantity supplied of a good changes when its price changes. It tells us whether producers are quick or slow to respond to price shifts.
Formula
The elasticity is calculated 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.
If $E_s > 1$, supply is elastic (responsive). If $E_s < 1$, supply is inelastic (unresponsive). If $E_s = 1$, supply is unit‑elastic.
Factors that Affect PES
| Factor | Effect on PES | Why? |
|---|---|---|
| Time Horizon | Longer time → higher PES | Firms can adjust production, hire workers, buy equipment. |
| Availability of Inputs | More inputs → higher PES | Easy to increase output when resources are plentiful. |
| Production Technology | Advanced tech → higher PES | Faster, cheaper, and more flexible production. |
| Capacity Constraints | Limited capacity → lower PES | Cannot increase output beyond existing limits. |
| Substitutability of Products | High substitutability → higher PES | Firms can switch easily between products. |
| Regulatory / Policy Constraints | Strict regulations → lower PES | Extra costs or limits on production. |
Analogy & Example
Imagine a pizza shop. If the price of pizza rises, the shop can quickly add more ovens (if they have spare capacity) and hire more chefs. This quick response means a high PES. But if the shop already has the maximum number of ovens and no spare space, it cannot increase output even if the price jumps. That’s a low PES.
Another example: A farmer’s wheat supply is inelastic in the short run because the land and equipment cannot be changed quickly. In the long run, the farmer can buy more land or invest in better machinery, making supply more elastic.
Exam Tips 📝
- Always state the formula for PES before discussing factors.
- Use the word elastic or inelastic to describe the direction of the response.
- When asked to explain a factor, describe the mechanism (e.g., “availability of inputs allows firms to increase output quickly”).
- Remember the time horizon: short run = less elastic, long run = more elastic.
- Use clear examples (e.g., “a factory with spare capacity” or “a farmer with fixed land”).
- Show your work if you calculate PES numerically: include the percentage changes.
Quick Summary
- PES = $\dfrac{\% \Delta Q_s}{\% \Delta P}$
- Elastic (Es > 1): producers respond quickly.
- Inelastic (Es < 1): producers respond slowly.
- Key factors: time, inputs, technology, capacity, substitutes, regulation.
Revision
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