Calculate PES and explain supply responsiveness
Compare proportional quantity-supplied and price changes, and explain why firms respond differently over time.
Section 2.7 · Price elasticity of supply (PES)
Cambridge IGCSE Economics 0455 / IGCSE (9–1) Economics 0987, 2027–2029 Version 1. Apply each model to the stated evidence and qualify conclusions where effects depend on context. Practice is original and self-checked; it is not a Cambridge paper, mark scheme or official grade.
Before you begin
- No prior economics study is assumed. Read the scenario for the decision-maker, the market or economy involved, the time period and the evidence supplied.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which condition tends to make supply more elastic in the short run?
What you will learn
- Define and calculate PES
- Interpret elasticity values and curves
- Explain determinants of supply responsiveness
PES compares proportional changes
Price elasticity of supply is percentage change in quantity supplied divided by percentage change in price. A value above 1 is elastic, below 1 is inelastic and equal to 1 is unit elastic in the standard classification.
Supply is perfectly inelastic when quantity does not respond and perfectly elastic in the limiting case where firms supply any quantity at one price. Real markets usually lie between these cases.
Capacity and time affect response
Spare capacity, stocks, available inputs, production time and mobility of resources can affect how quickly output responds. Perishable harvests or specialist production may be hard to expand immediately.
Elasticity depends on the period and circumstances. A firm may have inelastic short-run supply but more elastic long-run supply after investment or entry.
Pause and explain
Why may supply be more elastic in the long run?
Worked example
Price rises by 5% and quantity supplied rises by 15%. Calculate PES and interpret.
Show the worked solution
- Divide 15% by 5%.
- PES = 3.
- A value above one is elastic.
Answer PES is 3, so supply is elastic in this estimate: quantity supplied responds proportionally more than price.
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Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Price rises by 12% and quantity supplied rises by 6%. Calculate PES and classify.
Give me a hint
Use percentage quantity change divided by percentage price change.
Compare my reasoning
- 6 ÷ 12 = 0.5.
- The value is positive in this example.
- A value below one indicates inelastic supply.
PES is 0.5, so supply is inelastic over the period stated.
Look for these in your work
- Ratio correct
- Sign appropriate
- Classification correct
A hotel has empty rooms during a quiet week but a sold-out festival next week. Compare possible short-run supply responses.
Give me a hint
Think about spare capacity and whether new rooms can be added quickly.
Compare my reasoning
- During the quiet week, unused rooms may be available.
- For the festival, room capacity is fixed in the short run.
- The short-run supply response may differ across periods.
Supply may be more responsive when rooms are empty, but capacity is largely fixed during a sold-out festival week. The exact response depends on staffing and rooms available.
Look for these in your work
- Spare capacity used
- Time horizon stated
- Comparison qualified
A grower can expand output next year after installing irrigation, but not this season. Explain the time difference in PES.
Give me a hint
Separate current capacity from future investment.
Compare my reasoning
- Current output is constrained by existing growing conditions.
- Irrigation adds future productive capacity.
- Longer-run supply can be more elastic after investment.
Supply may be inelastic this season because capacity is fixed. After irrigation is installed, the grower can respond more strongly to price, making longer-run supply more elastic.
Look for these in your work
- Short run explained
- Investment linked
- Long run explained
Common mistakes
- Dividing price change by quantity change
- Assuming every firm can expand immediately
- Comparing elasticity without specifying the time period
What can you explain now?
What is the PES formula?
Compare with the explanation
% change in quantity supplied ÷ % change in price
It measures proportional supply responsiveness.
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Make it stick
What is the PES formula?
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