Short on time? This page is the recap. For explanations, graphs and worked examples, use the full study guide.
Recap
- Price elasticity of supply (PES) measures how strongly quantity supplied responds to a change in the good’s own price, in percentage terms.
- PES is positive: price and quantity supplied move in the same direction.
- Elastic PES > 1; inelastic PES < 1; unit elastic PES = 1. Each label applies to a price range.
- Perfectly inelastic (PES = 0): vertical supply curve, e.g. seats in a hall on the night. Perfectly elastic (PES infinite): horizontal supply curve.
- Supply is usually more elastic in the long run: the long-run supply curve is flatter through the same point.
Key relationships
| Relationship | How to use it |
|---|---|
| PES = % change in Qs ÷ % change in P | Percentages, never raw changes |
| % change (midpoint) = change ÷ average of the two values × 100 | Same answer whether price rises or falls |
| % change in Qs = PES × % change in P | Predict a response from a known elasticity |
| Straight-line supply curve: starts on price axis → elastic; from origin → unit elastic; starts on quantity axis → inelastic | Background check, not required by the course |
| Factor | Makes supply more elastic when… |
|---|---|
| Time | firms have longer to adjust and new firms can enter |
| Spare capacity | machines and workers are not fully used |
| Inputs | extra or alternative inputs are available at a steady price |
| Stocks | the good can be stored and released |
| Production time | the good can be made quickly |
Assumptions behind the model
- Only the good’s own price changes; input prices, technology and other supply factors stay the same, so we move along one supply curve.
- “Short run” means some inputs are fixed; “long run” means all inputs can change and firms can enter or leave.
Mistakes to avoid
- Dividing the raw change in quantity by the raw change in price.
- Giving PES a minus sign.
- Using demand-side factors (substitutes for buyers, share of income) to explain supply elasticity.
- Calling a curve inelastic just because it looks steep, without comparing at a common point.
- Applying the total revenue test to supply: along a supply curve, a higher price always raises sellers’ revenue.
- Drawing the long-run supply curve steeper than the short-run one.
Quick self-check
- Price rises from $15 to $25 and quantity supplied rises from 60 to 100. Find PES. (Qs: 40 ÷ 80 = 50%; P: 10 ÷ 20 = 50%; PES = 1, unit elastic)
- Why is the supply of fresh strawberries more elastic over a year than over a week? (Over a year, growers can plant more and new growers can enter; in a week, the crop is fixed and cannot be stored for long.)
- Draw supply for the tickets to one football match in a full stadium. (Vertical line at stadium capacity: PES = 0.)
Next: practice questions.