Cambridge IGCSE Economics 0455
Syllabus points
- Define and calculate price elasticity of supply (PES).
- Explain the determinants of PES.
What is PES?
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
- Elastic (greater than 1): output responds strongly to a price change.
- Inelastic (less than 1): output responds weakly.
Key definitions
| Term | Definition |
|---|---|
| PES | Responsiveness of quantity supplied to a change in price. |
| Spare capacity | Unused resources that let firms increase output quickly. |
Determinants of PES
- Spare capacity — idle machines and workers let firms raise output easily (elastic).
- Stocks — goods that can be stored can be supplied quickly (elastic).
- Time — supply is more elastic over the long run as firms invest and expand.
- Ease of switching production — how easily resources move into making the good.
- Perishability — perishable goods (fresh food) are harder to store, so supply is inelastic.
Why it matters
Many agricultural and raw material goods have inelastic supply in the short run — a crop cannot be increased overnight. This makes their prices swing sharply when demand or supply changes, unlike manufactured goods with more elastic supply.
Inelastic supply + a demand or supply shock → large price changes.
Worked example
A sudden rise in demand for fresh strawberries cannot be met quickly — the crop takes months to grow and strawberries cannot be stored (inelastic supply). So the price rises sharply while quantity changes little. A manufacturer of tinned goods, with spare capacity and storable stock, could raise output easily (elastic supply), keeping prices stable.
Common exam mistakes
- Confusing PES with PED.
- Ignoring the time period — supply is far more elastic in the long run.
- Assuming all goods have the same supply elasticity.
Exam technique
Link PES to real markets: use inelastic supply to explain volatile prices of food and commodities.
Quick revision
- PES = %ΔQs ÷ %ΔP; >1 elastic, <1 inelastic.
- Determinants: spare capacity, stocks, time, switching, perishability.