2.6 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.

PES diagrams show how quantity supplied responds to price; determinants include time, spare capacity, stocks, mobility of factors and production complexity.

The same firm may have inelastic short-run supply and elastic long-run supply as capacity changes.

A farmer cannot increase harvest this week, but can plant more next season.

A flatter curve is a modelled response, not a guarantee for every range.

Apply PES to a stated time horizon.

PES classification: perfectly inelastic $PES=0$ is vertical; inelastic $0<PES<1$; unit elastic $PES=1$; elastic $PES>1$; perfectly elastic tends to infinity and is horizontal. Determinants are time, mobility of factors, unused capacity, ability to store output and the rate at which costs rise as output expands. Compare curves only with the same axis scales and market definition.