Cambridge A Level Economics: Price elasticity of supply and consumer and producer surplus (9708) – Revision Notes

These notes condense sections 2.3 (Price elasticity of supply) and 2.5 (Consumer and producer surplus) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 2 is AS Level content and is assumed knowledge for A Level Papers 3 and 4. All figures are invented for illustration. Money is in currency units (cu).

For full explanations read the study guide, then test yourself with the practice questions. Use the course hub and printable checklist to track progress, and take a free 10-minute diagnostic to find weak spots.

2.3.1 to 2.3.2 Definition and formula

• Price elasticity of supply (PES): how strongly quantity supplied reacts when the good’s own price changes.
• PES = % change in quantity supplied divided by % change in price.
• Percentage change = (final minus starting value) divided by starting value, times 100.

Step	Do this
1	Work out the % change in price using the original price as the base
2	Work out the % change in quantity supplied using the original quantity as the base
3	Divide quantity % by price %
4	Keep the sign, then describe the size

Reminder. Price rises from 60 cu to 66 cu (+10%) and quantity from 300 to 345 (+15%). PES = 15 / 10 = 1.5, so supply is elastic.

2.3.3 Size and sign

PES	Description	Supply curve
0	Perfectly inelastic	Vertical
0 to 1	Inelastic	Quantity moves proportionately less than price
1	Unitary	Straight line through the origin
Above 1	Elastic	Quantity changes by a larger percentage
Infinity	Perfectly elastic	Horizontal

• Positive sign: price and quantity supplied move together. This is the normal case.
• Negative sign: quantity supplied moves against price. A worker who works fewer hours when pay rises is one possible case.
• A straight supply curve through the origin has PES of 1 everywhere. One that meets the price axis has PES above 1 everywhere. One that meets the quantity axis has PES below 1 everywhere.
• Slope is not the same as elasticity, because elasticity uses percentages.

2.3.4 Factors affecting PES

Factor	Higher PES when	Lower PES when
Spare capacity	Machines and workers are idle	Firms already work at full capacity
Stocks	Finished goods can be stored	Goods are perishable or none are held
Factor mobility	Resources move easily between uses	Resources are specialised
Time	Firms have long to respond	Only a moment or the short run is allowed
Production time	Output is quick to make	Output takes seasons or years
Entry	New firms can enter freely	Barriers to entry are high
Inputs	Raw materials and skills are plentiful	Key inputs are scarce

2.3.5 Speed and ease of reaction

• Momentary: supply cannot change. Short run: at least one factor is fixed. Long run: all factors can change.
• PES rises with time, for example 0, 0.3 and 1.8 as a grower moves from the momentary to the short and long run.
• High PES: firms react quickly and easily, shortages are brief, and price changes are small.
• Low PES: firms react slowly, shortages last, and price rises are large and last longer.
• Firms can raise PES by holding stocks, keeping spare capacity and using flexible contracts. Governments can raise it by helping resources to move.

2.5.1 to 2.5.2 Consumer and producer surplus

	Consumer surplus	Producer surplus
Meaning	Willingness to pay minus price paid	Price received minus minimum acceptable price
Diagram	Under demand, above price	Above supply, below price
Significance	Benefit above what consumers pay	Reward above cost, linked to profit

• Total surplus = consumer surplus + producer surplus. It is largest at the competitive equilibrium.
• Limits: surplus ignores income differences, and curves are only estimates.

Method for a triangle. Surplus = 1/2 x base x height. The base is the quantity traded. The height is the vertical gap between the price axis intercept of the curve and the market price.

2.5.3 Causes of changes in surplus

Event	Consumer surplus	Producer surplus
Supply rises (costs fall)	Rises	Usually rises
Supply falls	Falls	Usually falls
Demand rises	Rises	Rises
Demand falls	Falls	Falls
Per-unit tax	Falls	Falls
Price ceiling below equilibrium	Can rise or fall, depending on who gets the goods	Falls

Other causes: a subsidy, a price floor, or a change in the number of buyers or sellers.

2.5.4 The role of PED and PES

• A shift in one curve changes price by more when the other curve is inelastic, and quantity by more when it is elastic.
• A demand rise with inelastic supply gives a big price rise, so producer surplus rises a lot.
• A demand rise with elastic supply gives a small price rise and a big quantity rise, so the gain falls more on consumers.
• A supply rise with inelastic demand gives a big price fall, so consumers gain a lot and revenue falls.
• A supply fall with inelastic demand gives a big price rise, so consumer surplus falls a lot.
• Elasticities change over time, so the extent of change differs between short and long run.

Worked reminder: PES from an equation

Supply is Qs = 15P - 60. Find PES when price rises from 10 cu to 12 cu.

At 10 cu: Qs = 15 x 10 - 60 = 90
At 12 cu: Qs = 15 x 12 - 60 = 120
% change in price    = +20%
% change in quantity = (120 - 90) / 90 x 100 = +33.3%
PES = 33.3 / 20 = 1.67

The curve meets the price axis (Qs = 0 at P = 4), so PES is above 1, as the rule says.

Evaluation prompts for 2.3 and 2.5

• Time: is the answer about the momentary, short or long run? PES, and so the extent of change, differs between them.
• Size of change: for large changes the percentage method is less accurate, because elasticity varies along a curve.
• Data: surplus values depend on estimated curves, so treat them as approximate.
• Who gains: a rise in total surplus can still leave some groups worse off.
• Judgement: end by saying which factor carries most weight in this case, with a reason.

Must-know distinctions

• PES versus PED: PES relates quantity supplied to price. PED relates quantity demanded to price.
• Shift versus movement: a price change moves along a curve. Other causes shift it.
• Consumer versus producer surplus: one is below demand, the other above supply.
• Surplus versus profit: producer surplus is revenue minus the cost of the variable inputs, so it is larger than profit when fixed costs exist.

Quick self-test

1. Define price elasticity of supply.
2. Price rises from 25 cu to 30 cu and quantity supplied from 400 to 440. Calculate PES.
3. PES is 2.5 and price rises by 6%. By what percentage does quantity supplied change?
4. Price falls by 8% and quantity supplied falls by 12%. Calculate PES.
5. State whether PES is above, below or equal to 1 for a straight supply curve that meets the quantity axis.
6. Give two reasons why the PES of fresh flowers is low in the short run.
7. Demand is Qd = 500 - 4P and supply is Qs = 6P - 120. Calculate consumer and producer surplus.
8. Demand falls to Qd = 400 - 4P with supply unchanged. Find the new price and the new surplus values.
9. Demand rises. Does the price rise more when supply is elastic or inelastic?
10. State one limit of using consumer surplus to judge a policy.

Answers

1. How strongly quantity supplied reacts when the good’s own price changes.
2. Price +20%, quantity +10%. PES = 10 / 20 = 0.5 (inelastic).
3. 2.5 x 6 = 15% rise.
4. -12 / -8 = 1.5 (elastic).
5. Below 1, at every point on it.
6. Flowers are perishable so stocks cannot be held, and growing takes time because plants must be grown before they can be sold.
7. Equilibrium: 500 - 4P = 6P - 120, so P = 62 cu and Q = 252. Demand meets the price axis at 125 cu and supply at 20 cu. Consumer surplus = 1/2 x (125 - 62) x 252 = 7,938 cu. Producer surplus = 1/2 x (62 - 20) x 252 = 5,292 cu.
8. 400 - 4P = 6P - 120, so P = 52 cu, Q = 192. Demand now meets the price axis at 100 cu. Consumer surplus = 1/2 x (100 - 52) x 192 = 4,608 cu. Producer surplus = 1/2 x (52 - 20) x 192 = 3,072 cu. Both have fallen.
9. Inelastic supply, because firms cannot raise output easily, so more of the adjustment comes through price.
10. It ignores who gains, because rich consumers have higher willingness to pay. Curves are also estimated, so surplus values are rough.

Where marks are usually lost

• Using the new figure as the base for percentages.
• Calling PES of 0.5 elastic, or of 1.5 inelastic.
• Dividing quantity change by price change the wrong way round.
• Treating slope as elasticity when comparing two supply curves.
• Describing factors affecting PES without saying why they raise or lower it.
• Writing time period answers without stating what can or cannot be changed.
• Shading surplus on the wrong side of the price line.
• Forgetting the 1/2 in the area of a triangle.
• Using the consumer surplus formula with a price intercept taken from the wrong curve.
• Stating the effect on surplus without linking it to the elasticity of the curve that does not shift.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, sections 2.3 and 2.5 (Cambridge University Press & Assessment).