Price Elasticity of Supply: Formula, Determinants, Examples

Price elasticity of supply (PES) measures how much the quantity supplied responds to a change in the good's price: PES = (% change in quantity supplied) ÷ (% change in price). Supply is elastic when PES is greater than 1 and inelastic when it is less than 1, and the biggest single factor is time, because producers can expand output much more after a few months or years than after a few days.

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Supply and demand at equilibrium, drawn by the interactive graph. Tap it to drag the curves, open the full version, or put it on your own site free, or turn it into a five-minute class activity.

This guide covers the formula, the midpoint method, the determinants of supply elasticity, the perfectly elastic and perfectly inelastic cases, a worked short-run and long-run example, and how the idea is tested in AP Microeconomics Topic 2.4. The glossary entry on price elasticity of supply has the short definition.

The formula

PES = (% change in quantity supplied) ÷ (% change in price)

If the price of a good rises 10% and producers respond by raising quantity supplied 25%, then PES = 25% ÷ 10% = 2.5, so supply is elastic.

Because of the law of supply, price and quantity supplied move in the same direction along a supply curve. That means PES is positive, unlike price elasticity of demand, which is negative along a downward-sloping demand curve. You do not need to drop a minus sign or take an absolute value.

For two data points, AP courses use the midpoint method, which divides each change by the average of the two values so the answer is the same whether price rises or falls:

% change in quantity supplied = (Q2 - Q1) ÷ [(Q1 + Q2) ÷ 2]

% change in price = (P2 - P1) ÷ [(P1 + P2) ÷ 2]

Reading the number

The "steep" and "flatter" labels are a rough guide. Along most straight-line supply curves, elasticity changes from point to point even though the slope stays the same, so slope and elasticity are not the same thing. A useful shortcut for straight-line supply curves: a line that starts on the price axis is elastic everywhere, a line through the origin is unit elastic everywhere, and a line that starts on the quantity axis is inelastic everywhere.

Determinants of price elasticity of supply

PES depends on how easily producers can change output when price changes. Four factors carry most of the weight.

• Time horizon. This is the most important one. Right after a price rise, firms can only work their existing equipment harder. Given more time, they hire and train workers, buy machines, build plants, and new firms enter the industry. Supply becomes more elastic the longer producers have to respond.
• Spare capacity. A factory running at 70% of capacity can raise output quickly and cheaply. One running at full capacity cannot, so its supply is inelastic until it adds capacity.
• Availability and mobility of inputs. If the extra inputs are common and easy to hire (general labor, standard materials), supply is more elastic. If they are scarce or specialized (land in a fixed location, highly trained surgeons, a rare mineral), supply is less elastic.
• Inventories and storage. Goods that can be stored let producers respond to a price rise by selling from stock, which makes supply more elastic. Perishable goods, such as fresh fish or cut flowers, cannot be held back, so short-run supply is less elastic.

A fifth factor sometimes listed is how easily producers can switch between products. A farmer who can plant corn or soybeans on the same land can move toward whichever price rose, which makes the supply of each crop more elastic.

Perfectly inelastic and perfectly elastic supply

Perfectly inelastic supply (PES = 0) is a vertical supply curve. The quantity is fixed no matter what the price does. Seats in a sold-out stadium on game night, original paintings by an artist who has died, and the land area of a city block are standard examples. When demand rises for a good with vertical supply, the whole adjustment shows up in price, and quantity stays the same.

Perfectly elastic supply (PES infinite) is a horizontal supply curve. Producers will supply any amount at one price, and nothing at a lower price. The key AP case is the long-run supply curve of a constant-cost, perfectly competitive industry. If demand rises, the price rises for a while, firms earn economic profit, new firms enter, and price falls back to the original level at minimum average total cost. Quantity ends up higher at the same price, so the long-run supply curve is flat. The perfect competition guide walks through that entry process step by step.

The comparison page on perfectly elastic vs perfectly inelastic puts the two extremes side by side.

Worked example: strawberries in the short run and the long run

The price of strawberries rises from $3 to $5 per pound after a sudden jump in demand.

Midpoint percentage change in price:

(5 - 3) ÷ [(3 + 5) ÷ 2] = 2 ÷ 4 = 50%

Short run (the following week). Growers can only pick existing fields more carefully and send more of the crop to market. Quantity supplied rises from 1,000 crates to 1,200 crates.

(1,200 - 1,000) ÷ [(1,000 + 1,200) ÷ 2] = 200 ÷ 1,100 = 18.18%

PES = 18.18% ÷ 50% = 0.36, so short-run supply is inelastic.

Long run (after the next planting season). If the price holds at $5 long enough for growers to plant more acres and for new growers to enter, quantity supplied reaches 2,000 crates compared with the original 1,000.

(2,000 - 1,000) ÷ [(1,000 + 2,000) ÷ 2] = 1,000 ÷ 1,500 = 66.67%

PES = 66.67% ÷ 50% = 1.33, so long-run supply is elastic.

The price change is the same; only the time producers had to respond is different. Check the arithmetic with the price elasticity of supply calculator.

Why the long run is more elastic

In the short run, at least one input is fixed. For the strawberry grower it is the land already planted; for a factory it is the plant and equipment. Adding workers to a fixed input runs into diminishing marginal returns, so each extra unit of output costs more to produce, marginal cost rises steeply, and the supply curve is steep.

In the long run, every input is variable. Firms can add land, machines, and buildings, and new firms can enter. Output can grow without piling more and more workers onto the same fixed input, so the cost of each extra unit of industry output rises much more slowly. In a constant-cost industry it does not rise at all, because new firms enter and produce at the same minimum average total cost. That is why the long-run supply curve is flatter than the short-run curve. The short run vs long run guide explains the fixed-input definition that drives this result.

Why supply elasticity matters

PES decides how a demand shift splits between price and quantity. Shift demand right in the supply and demand sandbox to see the shift itself; how the change divides depends on the supply curve it meets:

• With inelastic supply, price rises a lot and quantity rises a little.
• With elastic supply, price rises a little and quantity rises a lot.

It also decides who bears a tax. When supply is more elastic than demand, sellers can cut back output easily, so buyers bear more of the burden. When supply is less elastic than demand, sellers bear more. The tax incidence guide works through the graphs.

How it shows up on the AP exam

Price elasticity of supply questions usually ask you to:

• Calculate PES from two prices and two quantities, often with the midpoint method.
• Identify a supply curve from a description, such as a fixed number of concert seats (vertical) or a constant-cost industry in the long run (horizontal).
• Explain the role of time, for example why supply of a crop is more elastic after a full growing season than after one week.
• Predict outcomes of a demand shift or a tax given information about how elastic supply is.

Common mistakes:

• Flipping the formula. Quantity supplied goes on top and price goes on the bottom.
• Mixing up the extremes. Vertical is perfectly inelastic; horizontal is perfectly elastic. A memory aid: the "I" in inelastic is a vertical line.
• Treating slope as elasticity. Only the vertical and horizontal cases can be read straight from slope.
• Forgetting time. If a question mentions "over several years" or "immediately," that wording is a signal about elasticity.
• Using demand determinants. The number of substitutes drives demand elasticity, not supply elasticity. For supply, think time, capacity, inputs, and storage.

The AP Micro 2.4 topic page collects the key terms and calculators for this topic, and the comparison of price elasticity of demand vs supply shows the two measures side by side.

Summary

Price elasticity of supply equals the percentage change in quantity supplied divided by the percentage change in price, and it is positive along an upward-sloping supply curve. Supply is more elastic when producers have more time, spare capacity, easy access to inputs, and the ability to store output. A vertical supply curve is perfectly inelastic, and a horizontal one, such as the long-run supply of a constant-cost competitive industry, is perfectly elastic. Long-run supply is more elastic than short-run supply because every input can change and new firms can enter.