Price Elasticity of Supply (PES)
Price Elasticity of Supply (PES) measures the responsiveness of quantity supplied to a change in price. A high PES indicates that producers can quickly increase output when prices rise (elastic supply), while a low PES suggests supply is constrained in the short run. PES is always positive (supply curve slopes upward) and depends critically on the time period and the nature of the production process.
Key Terms & Definitions
Price Elasticity of Supply (PES)
Measures the responsiveness of quantity supplied to a change in price. PES = % change in Qs ÷ % change in P.
Elastic Supply
When PES > 1 — producers can significantly increase output in response to a price rise.
Inelastic Supply
When PES < 1 — producers cannot easily increase output in response to a price rise (e.g., agricultural goods, oil).
Perfectly Inelastic Supply
PES = 0 — quantity supplied does not change regardless of price (vertical supply curve). E.g., land in a fixed location.
Perfectly Elastic Supply
PES = ∞ — producers will supply any quantity at the given price (horizontal supply curve).