Syllabus points
- Calculate and interpret price elasticity of supply (PES).
- Explain the determinants of PES.
- Apply PES to primary commodities versus manufactured goods.
Price elasticity of supply
PES measures how responsive quantity supplied is to a change in price.
PES = percentage change in quantity supplied ÷ percentage change in price
PES is normally positive (supply slopes up):
- Elastic (PES > 1): output responds strongly to price.
- Inelastic (PES < 1): output responds weakly.
Key definitions
| Term | Exam-ready definition |
|---|---|
| PES | Responsiveness of quantity supplied to a change in price. |
| Spare capacity | Unused factors that let firms raise output quickly. |
| Perishability | How quickly a good deteriorates, limiting the ability to store it. |
Determinants of PES
- Spare capacity — idle machines and workers make supply elastic.
- Stocks/inventories — storable goods can be released quickly (elastic).
- Time period — supply is more elastic in the long run as firms invest and expand.
- Factor mobility — how easily resources shift into producing the good.
- Perishability — perishable goods (fresh food) tend to have inelastic supply.
Why it matters
Primary commodities (crops, minerals) often have inelastic supply in the short run — production takes time and depends on nature. Combined with inelastic demand, this causes large price swings when supply or demand shifts. Manufactured goods usually have more elastic supply, so their prices are more stable.
Inelastic supply + a demand or supply shock → large price changes (a key reason for volatile commodity prices).
Worked example
A frost destroys part of an orange crop. Because supply is inelastic (the crop cannot be increased quickly and oranges are perishable), the leftward supply shift raises price sharply while quantity falls only modestly. Growers with surviving crops may see higher revenue if demand is inelastic.
Common exam mistakes
- Confusing PES with PED.
- Ignoring the time period — supply is far more elastic in the long run.
- Assuming all agricultural supply is identical; it varies by storability.
Exam technique
Link PES to real markets: use inelastic commodity supply to explain price volatility and the case for buffer stocks or price stabilisation (links to 2.7 and to development topics).
Quick revision
- PES = %ΔQs ÷ %ΔP; >1 elastic, <1 inelastic.
- Determinants: spare capacity, stocks, time, factor mobility, perishability.
- Primary goods: inelastic supply → volatile prices.