How to Calculate Price Elasticity of Supply
Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price; above 1 is elastic, below 1 inelastic.
The Price Elasticity of Supply formula
Calculator
Enter two price and quantity-supplied points; get the midpoint %ΔQs, %ΔP, PES, and the verdict.
The starting price. The worked example uses a rise from $4 to $6.
Quantity at the new price. It moves the same way price does.
A 1% price change moves quantity supplied only 0.5%, less than proportionally, so output is hard to adjust over this period.
- % change in quantity supplied
- 20%
- % change in price
- 40%
- Elasticity verdict
- Inelastic supply
How to calculate Price Elasticity of Supply, step by step
- 1Find the % change in quantity supplied (midpoint). (Q₂ − Q₁) ÷ ((Q₁ + Q₂) ÷ 2).
- 2Find the % change in price (midpoint). (P₂ − P₁) ÷ ((P₁ + P₂) ÷ 2).
- 3Divide. PES = %ΔQs ÷ %ΔP. It is positive because supply slopes upward.
- 4Interpret. PES > 1 = elastic supply, < 1 = inelastic, = 1 = unit elastic. A vertical supply curve is perfectly inelastic (PES = 0).
Worked example: Price Elasticity of Supply
Price rises from $4 to $6 and quantity supplied rises from 90 to 110. %ΔQs = 20 ÷ 100 = 20%; %ΔP = 2 ÷ 5 = 40%. PES = 20% ÷ 40% = 0.5 → inelastic supply.
Time is the main thing that changes it
Supply elasticity depends less on the good than on how long producers have had to respond, and questions almost always turn on that.
Immediately, output is close to fixed. A farmer whose crop is already planted cannot grow more this season whatever the price does, so supply is nearly vertical and PES is close to zero. Over months, existing capacity can be run harder, extra shifts added, inventories drawn down. Over years, new capacity gets built and firms enter, so supply becomes elastic.
So the same market has three different answers depending on the time frame, and a question specifying "in the short run" is telling you which one it wants.
The other determinants follow the same logic. Goods that store well have more elastic supply, because inventory can be released when the price rises. Production needing highly specific inputs or long lead times is less elastic, because scaling up is slow whatever the price.
Price Elasticity of Supply questions
Why is price elasticity of supply positive?
The law of supply says price and quantity supplied move in the same direction, so both percentage changes have the same sign and the ratio is positive.
What determines how elastic supply is?
Time is the biggest factor, supply is more elastic in the long run when firms can adjust all inputs. Spare capacity, mobile resources, and easy storage also make supply more elastic.
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