Price Elasticity of Supply (PES)

This lesson covers price elasticity of supply — a measure of how responsive the quantity supplied is to a change in price. PES is important for understanding how quickly and effectively markets can respond to changes in demand, and it has significant implications for the effects of indirect taxes and subsidies. This topic is examined on AQA Paper 1.

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What is Price Elasticity of Supply?

Key Definition: Price elasticity of supply (PES) measures the responsiveness of the quantity supplied of a good to a change in its price, ceteris paribus.

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The PES Formula

PES = Percentage change in quantity supplied / Percentage change in price

PES = (%ΔQs) / (%ΔP)

PES is always positive (or zero) because of the law of supply — a higher price leads to a higher quantity supplied.

Worked Example

The price of strawberries rises from £2.00 to £2.40 per punnet (a 20% increase). Farmers increase supply from 10,000 punnets to 11,000 punnets per week (a 10% increase).

PES = +10% / +20% = 0.5

Supply is price inelastic — quantity supplied increased proportionately less than the price increase.