Interpretation of the significance of the PES value: perfectly inelastic, inelastic, unitary, elastic, perfectly elastic

Published by Patrick Mutisya · 14 days ago

IGCSE Economics 0455 – Allocation of Resources: Price Elasticity of Supply (PES)

Price Elasticity of Supply (PES)

The price elasticity of supply measures how responsive the quantity supplied of a good or service is to a change in its price. It is calculated as:

\$Es = \frac{\%\Delta Qs}{\%\Delta P}\$

Where:

  • \(\%\Delta Q_s\) = percentage change in quantity supplied

  • \(\%\Delta P\) = percentage change in price

Interpreting the PES \cdot alue

The numerical value of \(E_s\) indicates the degree of responsiveness. The following categories are used in IGCSE Economics:

PES \cdot alue (Range)InterpretationTypical CharacteristicsExample
0 (Exactly)Perfectly Inelastic SupplyQuantity supplied does not change regardless of price movements.Land in a fixed location; the amount of land cannot be increased.
0 < \(E_s\) < 1Inelastic SupplyQuantity supplied changes, but proportionally less than the price change.Perishable agricultural products where production cannot be quickly expanded.
\(E_s = 1\)Unitary Elastic SupplyPercentage change in quantity supplied equals the percentage change in price.Some manufactured goods where firms can adjust output at a constant rate.
\(E_s > 1\)Elastic SupplyQuantity supplied changes proportionally more than the price change.Products with flexible production capacity, such as clothing.
∞ (Infinite)Perfectly Elastic SupplyAny increase in price leads to an infinite increase in quantity supplied; producers are willing to supply any amount at a given price.Highly competitive markets for a commodity where firms can instantly ramp up output, e.g., electricity from a large grid.

Factors Influencing the Elasticity of Supply

  1. Time period: Supply is more elastic in the long run because firms have time to adjust production capacity.

  2. Availability of inputs: Easy access to raw materials and labour makes supply more elastic.

  3. Spare capacity: Firms operating below capacity can increase output without large cost increases.

  4. Mobility of factors of production: Highly mobile factors (e.g., labour) increase elasticity.

  5. Nature of the good: Perishable or fixed‑supply goods tend to have inelastic supply.

Why Understanding PES Matters

Knowing the elasticity of supply helps policymakers and businesses predict how changes in market conditions (such as taxes, subsidies, or price controls) will affect the quantity produced and the overall market equilibrium.

Suggested diagram: Supply curves illustrating perfectly inelastic, inelastic, unitary, elastic, and perfectly elastic supply on the same graph.