2.6.1—Price elasticity of supply

$PES=(\%\Delta Q_s)/(\%\Delta P)$. Price and quantity supplied normally move together, so PES is non-negative and its theoretical range is from zero to infinity.

Calculate both percentage changes with a consistent base, divide and classify: $0<PES<1$ inelastic, $PES=1$ unit elastic and $PES>1$ elastic. Rearrange $\%\Delta Q_s=PES\times\%\Delta P$ to find a missing response.

Example

If price rises by $10\%$ and quantity supplied rises by $5\%$, $PES=5\%/10\%=0.5$, so supply is price inelastic over that period. If $PES=1.4$ and price rises $5\%$, quantity supplied is predicted to rise $7\%$.

PES is a percentage responsiveness, not slope, and applies to a stated market, interval and time horizon. The determinants explaining its value belong to Objective 2.6.2.

Always interpret both the coefficient and the production time period.