Price Elasticity of Supply (PES) Calculator
Responsiveness of quantity supplied to a change in price.
Formula first
Overview
Price Elasticity of Supply (PES) measures the degree of responsiveness of the quantity supplied of a good or service to a change in its market price. It quantifies the sensitivity of producers to price shifts, indicating whether production can be easily adjusted or if it is constrained by factors like time and resource availability.
Symbols
Variables
PES = PES, \%\Delta QS = %Δ Quantity, \%\Delta P = %Δ Price
Apply it well
When To Use
When to use: Apply this equation to determine if a supply curve is elastic, inelastic, or unit elastic based on production flexibility. It is particularly useful when comparing short-run and long-run responses of industries to shifts in market demand.
Why it matters: This metric helps businesses optimize inventory levels and helps policymakers understand how taxes or subsidies will impact production levels. A high PES suggests a firm can quickly capitalize on price increases, while a low PES indicates production bottlenecks.
Avoid these traps
Common Mistakes
- Using absolute changes instead of percentage changes.
One free problem
Practice Problem
A textile factory increases its monthly output of shirts by 12% after the market price per shirt rises by 8%. Calculate the price elasticity of supply for this factory.
Solve for:
Hint: Divide the percentage change in quantity supplied by the percentage change in price.
The full worked solution stays in the interactive walkthrough.
References
Sources
- Mankiw, N. Gregory. Principles of Economics.
- Wikipedia: Price elasticity of supply
- Britannica: Price elasticity of supply
- Mankiw, N. Gregory. Principles of Economics. Cengage Learning.
- Sloman, John, et al. Economics. Pearson Education.
- Parkin, Michael. Economics. Pearson Education.
- GCSE Economics Specification