IB DP Economics: Elasticity of supply – Revision Notes

These notes follow the IB Diploma Programme Economics guide (first assessment 2022, published February 2020), the course examined from the 2022 session onwards. They cover sub-topic 2.6 Elasticity of supply for SL and HL, with one HL only point on primary commodities. Read the study guide for full explanations. Test yourself with the practice questions, tick items off on the printable checklist, and see the IB DP Economics hub. A short diagnostics check shows which parts need most work.

Core definition and formula

Price elasticity of supply (PES) shows how strongly output reacts when the price moves.

Item	Rule
PES	%ΔQs / %ΔP: output change over price change, each in percent
Percentage change	(new − old) / old × 100
Quantity from PES	percentage change in quantity = PES × percentage change in price
Price from PES	percentage change in price = percentage change in quantity / PES
Sign	Positive on an upward-sloping supply curve

Keep the order straight: quantity supplied on top, price underneath.

Method in steps

1. Write the formula down.
2. Work out the percentage change in price.
3. Work out the percentage change in quantity supplied.
4. Divide quantity change by price change.
5. State whether supply is elastic, inelastic or unitary, and give a short reason.

Worked reminder

Price rises from 20 to 25 and quantity supplied from 160 to 200 in an illustrative market.

• Price: (25 − 20) / 20 × 100 = 25%
• Quantity: (200 − 160) / 160 × 100 = 25%
• PES = 25 / 25 = 1.0, so supply is unitary.

Reverse reminders

• PES 2 and price up 3%: quantity supplied rises by 2 × 3 = 6%.
• PES 0.5 and quantity needs to rise 4%: price must rise by 4 / 0.5 = 8%.

Degrees of PES

Value	Name	Diagram (price on vertical axis, quantity on horizontal)
0	Perfectly inelastic	Vertical line
0 to 1	Relatively inelastic	Straight line meeting the quantity axis
1	Unitary	Straight line through the origin
Above 1	Relatively elastic	Straight line meeting the price axis
Infinity	Perfectly elastic	Horizontal line

Memory aid: extend a straight supply line back. Meeting the price axis means elastic. Meeting the quantity axis means inelastic. Passing through the origin means unitary, however steep it is.

Determinants of PES

Determinant	Raises PES	Lowers PES
Time	Longer period; inputs can be adjusted	Short period; inputs are fixed
Mobility of factors of production	Resources move easily between uses	Resources are specialised
Unused capacity	Spare capacity exists	Already at full capacity
Ability to store	Stocks can be held and released	Perishable; costly to store
Rate at which costs increase	Costs rise slowly with output	Costs rise steeply with output

How to use these in an answer: name the determinant, say whether it makes supply more or less responsive, and tie it to the product in the question. For example, “the firm is operating at full capacity, so extra output requires new machines, which lowers PES in the short run.”

HL only: primary commodities and manufactured goods

The PES of primary commodities is generally lower than that of manufactured products. Reasons to remember:

• Production takes a long time (growing seasons, tree crops, mine development).
• Land and natural deposits are fixed and hard to switch to other uses.
• Many are perishable or hard to store in quantity.
• Extra output from limited land or a single mine can bring steeply rising costs.
• Weather and geology interfere with planned output.

Manufacturers generally have more flexibility with shifts, machinery and stocks.

Must-know distinctions

Pair	Difference
PES and price elasticity of demand	PES is positive; demand elasticity is normally negative because demand slopes downward
Steepness and elasticity	Steepness is not PES; only a line through the origin gives exactly 1
Short run and long run	Short run: at least one input is fixed. Long run: all inputs can change
Movement along the curve and shift of the curve	A price change moves you along S. A change in cost or technology shifts S
Inelastic and perfectly inelastic	Inelastic is below 1. Perfectly inelastic is exactly zero

Diagram checklist

• Axes labelled: Price (vertical), Quantity supplied (horizontal).
• Curve labelled S.
• For two time periods, label S (short run) and S (long run); the long-run curve is flatter.
• Say in words which PES value your diagram shows.

Time and PES: a pattern to memorise

In a fictional market a price rise of 10% might produce these responses.

Period	What is fixed	Typical result
Immediate	Output and stocks	Almost no response, PES close to 0
Short run	Capital, but labour and materials can change	Some response, PES below 1
Long run	Nothing	Larger response, PES often above 1

The pattern is the reason a supply diagram can show a steep short-run curve and a flatter long-run curve for the same product.

A model paragraph on a determinant

Use this three-part shape: claim, reason, link to the product.

“Unused capacity raises PES. A bakery with idle ovens and staff can bake extra loaves as soon as the price rises, without buying equipment. Quantity supplied therefore rises by a larger percentage than price, and supply is relatively elastic.”

For a lower PES, reverse it: “A shipyard working at full capacity cannot add output without building new berths, which takes years, so PES is low in the short run.”

Checks before you move on

• Can you draw all five supply diagrams without looking?
• Can you explain why every point on a straight line from the origin gives PES = 1?
• Can you do each calculation type: find PES, find new quantity, find the price change required?
• Can you link each determinant to a product and a direction?
• If you are taking HL, can you give three reasons for the primary commodity point?

Quick self-test

1. Give the PES formula.
2. Price rises from 20 to 25 and quantity supplied rises from 160 to 200 (illustrative). Calculate PES.
3. PES is 2 and price rises by 3%. What is the percentage change in quantity supplied?
4. PES is 0.5. Quantity supplied must rise by 4%. By what percentage must price rise?
5. Price falls from 90 to 81 and quantity supplied falls from 500 to 470. Calculate PES.
6. Price rises from 8 to 10 and quantity supplied from 240 to 264. Calculate PES and say whether supply is elastic or inelastic.
7. A firm has PES of 3 and supplies 1,200 units. Price falls by 2%. Find the new quantity supplied.
8. A producer has PES of 1.25 and supplies 800 units. Price rises 16%. Find the new quantity.
9. Name the five determinants of PES that the guide lists.
10. HL only: give two reasons why the PES of a farm crop is generally lower than the PES of a manufactured good.
11. Which straight-line supply curve has PES of 1 at every point?
12. A firm sells 250 units at 10 and 300 at 12. A second firm sells 250 at 10 and 275 at 12. Which has the higher PES, and by how much?

Answers

1. PES = %ΔQs / %ΔP.
2. Price +25%, quantity +25%, so PES = 1.0 (unitary).
3. 2 × 3 = 6%.
4. 4 / 0.5 = 8%.
5. Price: (81 − 90) / 90 = −10%. Quantity: (470 − 500) / 500 = −6%. PES = −6 / −10 = 0.6.
6. Price +25%, quantity +10%. PES = 0.4, so inelastic.
7. Quantity change = 3 × (−2%) = −6%. New quantity = 1,200 × 0.94 = 1,128 units.
8. Quantity change = 1.25 × 16% = 20%. New quantity = 800 × 1.2 = 960 units.
9. Time; mobility of factors of production; unused capacity; ability to store; rate at which costs increase.
10. Any two: long production time (growing seasons); fixed land or deposits that cannot switch use; perishability and difficulty of storage; steeply rising costs when output is pushed on limited land; weather and natural limits.
11. A straight line passing through the origin.
12. First firm: price +20%, quantity +20%, PES = 1.0. Second firm: price +20%, quantity +10%, PES = 0.5. The first firm is higher, by 0.5.

Where marks are usually lost

• Inverting the ratio so price sits above quantity.
• Using absolute changes instead of percentage changes.
• Dropping the negative signs on a price fall, then reporting a negative PES.
• Stopping at the number when the question also wants a verdict: elastic, inelastic or unitary.
• Listing determinants without explaining the direction of the effect.
• Drawing a diagram without labelled axes or without labelling the curve.
• Believing a steep line must be inelastic, whatever the intercept.
• Writing “time” as the only determinant of PES and not saying what is fixed or adjustable in the period.
• Putting the HL only primary commodity argument in an SL answer, or leaving it out when the HL question asks for it.
• Quoting a figure for a real country or firm. Use only the data in the question.

Command terms to recognise

The guide groups command terms by assessment objective. Calculate, draw, label and show are AO4 skill terms. Define, outline and state are AO1. Explain, analyse and apply are AO2. Discuss and evaluate are AO3, which ask for judgement. Always check which one you are given before you decide how much to write.

Official syllabus

IB Diploma Programme Economics guide, first assessment 2022, published by the International Baccalaureate Organization (February 2020). This page covers sub-topic 2.6 in Unit 2.