Cambridge O Level Economics: Price elasticity of supply: calculation, determinants and significance (2281) – Revision Notes

These notes condense section 2.8 (2.8.1 to 2.8.4, price elasticity of supply, PES) of the Cambridge O Level Economics (2281) syllabus for examination in 2026, version 2. There are no tiers here. For full explanations use the study guide, then work through the practice questions. Also useful: the Cambridge O Level Economics hub, the printable checklist and the free diagnostics. All figures below are invented and illustrative.

2.8.1 Definition

PES measures how responsive quantity supplied is when price changes.

• Elastic: quantity supplied changes by a larger percentage than price.
• Inelastic: quantity supplied changes by a smaller percentage than price.

2.8.2 Formula and interpretation

Item	Rule
Formula	PES = % change in quantity supplied / % change in price
% change	(new - original) / original x 100
Sign	Positive for an upward-sloping supply curve
Above 1	Elastic
Exactly 1	Unitary
Between 0 and 1	Inelastic
0	Perfectly inelastic (upright curve)
Infinite	Perfectly elastic (horizontal curve)

Method in steps

1. Find the change in price and in quantity (new minus original).
2. Divide each change by its original value and multiply by 100.
3. Work out quantity percentage over price percentage.
4. State the value, say elastic, inelastic or unitary, and say what it means in the context.

Worked reminders

• Price 30 to 36, quantity 200 to 230 (illustrative). Price +20%, quantity +15%. PES = 15 / 20 = 0.75, inelastic.
• Price 90 to 81, quantity 500 to 410. Price -10%, quantity -18%. PES = -18 / -10 = 1.8, elastic.
• Backwards: PES 2.5, price +4%, quantity 1,600. Quantity +10%, so 1,600 x 1.10 = 1,760.
• Target: PES 0.5, output wanted +6%. Price must rise 6 / 0.5 = 12%.

Diagrams

Curve	PES	Sketch in words
Vertical	0	Straight up from the quantity axis. Price moves, output stays put
Horizontal	Infinite	Flat line from the price axis
Straight line through the origin	1 at every point	Rising line from the corner where the axes meet
Straight line meeting the price axis above zero	Above 1	Starts higher up the price axis, rising to the right
Straight line meeting the quantity axis	Below 1	Starts to the right of the origin on the quantity axis

Two curves through the same point: the flatter is more elastic. Steepness alone does not give the number.

Check with price moving from 10 to 11. Q = 3P goes 30 to 33, PES = 10 / 10 = 1. Q = 20 + 2P goes 40 to 42, PES = 5 / 10 = 0.5. Q = 2P - 8 goes 12 to 14, PES = 16.7 / 10 = 1.67.

2.8.3 Determinants

Factor	Effect on PES	Reason
Spare capacity	More spare capacity, more elastic	Output rises without new machines
Stocks of finished goods	Large stocks, more elastic	Can be released when price rises
Time	Longer time, more elastic	Firms can build, hire, train and new firms can enter
Mobility of factors	Easy switching, more elastic	Resources move into the dearer product
Availability of inputs	Plentiful inputs, more elastic	No shortage holds output back
Production period	Short period, more elastic	Output responds quickly

Perishable goods and crops that take a season to grow are usually inelastic in the short run.

2.8.4 Significance

Who	If supply is inelastic	If supply is elastic
Consumers	Demand rises push prices up sharply with little extra output	Prices stay steadier and more becomes available
Producers	Cannot take advantage of price rises quickly, so rivals may gain	Can expand quickly to take advantage; may need spare capacity or stocks
Government	Subsidy adds little output in the short run (the price falls more than quantity rises) and a price signal brings a slow response; maximum prices risk persistent shortages	Price signals and subsidies change output more reliably

Illustration (invented): demand rises by the same amount in two markets. Where PES is 0.4 the price rises 10% and output 4%. Where PES is 4 the price rises 4% and output 16%.

Chain of reasoning for a 6-mark style answer

Demand rises, then price rises. Firms want to produce more. If they have spare capacity and stocks, output rises quickly and price rises only a little. If not, output rises slowly, price rises a lot and a shortage can last. So the price effect on consumers depends on PES.

Determinants with numbers (illustrative)

• Spare capacity. A plant makes 600 units and can make 750. A 4% price rise lifts output 15% to 690. PES = 15 / 4 = 3.75. At 750 units it is full, and the same price rise cannot raise output at all in the short run.
• Time. Price +10%. Output 400 to 404 after a week (+1%, PES 0.1). Output 400 to 480 after three years (+20%, PES 2.0).
• Stocks. A seller holds 300 units in store and sells 200 a week. A price rise lets it sell the stock at once, so quantity supplied can jump straight away.

Model paragraphs to adapt

Explain one determinant of PES. “Spare capacity affects PES. A firm with machines and staff not yet fully used can lift output soon after the price rises, because it does not need to buy new equipment. Supply is therefore more elastic. A firm that is already at full capacity cannot, so supply is inelastic until it expands.”

Explain why PES matters to producers. “If supply is elastic, a firm can respond to a higher price by raising output and earning more from the market. If supply is inelastic, it cannot, so competitors or imports may take the extra sales. Firms therefore keep spare capacity or stocks in markets where demand can rise suddenly.”

Explain why PES matters to government. “If the government wants more of a good and supply is inelastic, a subsidy may add little output in the short run, because firms cannot expand quickly, while still costing the government money. It may need policies that expand capacity over time. Where supply is elastic, a subsidy is likely to raise output by more.”

Evaluation prompts

• How long is the period? Supply that is inelastic this month may be elastic next year.
• Is the firm at full capacity now or does it have spare capacity?
• Can inputs be obtained, or is a shortage of land, skilled labour or materials the limit?
• Does the policy depend on a price signal, and can firms respond to it?
• What is the cost to the government of waiting for supply to adjust?

Must-know distinctions

• PES versus PED: PES uses quantity supplied and firms’ ability to produce. PED uses quantity demanded and consumers’ choices. Substitutes are a PED determinant, not a PES determinant.
• Elastic versus steep: elasticity depends on percentages, not on how steep the curve looks.
• Short run versus long run: the same product can be inelastic now and elastic in two years.
• Unitary versus elastic: exactly 1 is neither above nor below 1.

Quick self-test

1. Define PES.
2. Price rises from 25 to 28 and quantity supplied from 400 to 424. Calculate PES.
3. PES is 1.4 and price rises 5%. By what percentage does quantity supplied rise?
4. What is the PES of a vertical supply curve?
5. A straight supply curve starts at the origin. What is its PES?
6. Give two determinants of PES and say why each matters.
7. Why is PES of fresh produce usually low in the short run?
8. Price falls 8% and quantity falls 12%. Calculate PES and describe the supply.
9. PES is 0.25. A government wants output up 5%. What price rise is needed?
10. Why can a maximum price cause a lasting shortage where supply is inelastic?
11. Why is supply more elastic in the long run?

Answers

1. How responsive quantity supplied is to a price change.
2. Price +12%, quantity +6%. PES = 6 / 12 = 0.5, inelastic.
3. 1.4 x 5 = 7%.
4. 0.
5. 1 (unitary).
6. For example, spare capacity (output can rise without new machines) and time (firms can expand capacity and new firms enter).
7. It cannot be stored and takes time to grow, so output cannot respond quickly.
8. -12 / -8 = 1.5, elastic.
9. 5 / 0.25 = 20%.
10. Firms cannot expand output to meet the demand at the low price, so the shortage continues.
11. With time, firms can expand capacity, recruit and train staff, and new firms can start up.

Where marks are usually lost

• Putting price on top of the formula.
• Dividing by the new value instead of the original.
• Writing “elastic” with no number, or the number with no description.
• Calling PES of 1 elastic.
• Judging elasticity by the steepness of a curve.
• Listing determinants with no reason.
• Writing about PED determinants such as substitutes.
• Describing effects on “the economy” instead of naming consumers, producers or government.
• Giving no time period when comparing short run and long run.

Official syllabus

Cambridge O Level Economics (2281) syllabus for examination in 2026, version 2, published by Cambridge University Press & Assessment: section 2.8 Price elasticity of supply (PES).