Calculation of PES using the formula

Price Elasticity of Supply (PES) 📦

Price elasticity of supply measures how responsive the quantity supplied of a good is to a change in its price.

It helps producers and governments understand how quickly suppliers can adjust output when market conditions change.

The Formula

\$PES = \frac{\%\Delta Q_s}{\%\Delta P}\$

Where:

\$\%\Delta Q_s\$ = percentage change in quantity supplied

\$\%\Delta P\$ = percentage change in price

How to Calculate PES – Step‑by‑Step

1. Find the initial and new quantity supplied (\$Q{s1}\$ and \$Q{s2}\$).
2. Find the initial and new price (\$P1\$ and \$P2\$).
3. Calculate the percentage change in quantity supplied:

   \$\%\Delta Qs = \frac{Q{s2} - Q{s1}}{Q{s1}} \times 100\$

4. Calculate the percentage change in price:

   \$\%\Delta P = \frac{P2 - P1}{P_1} \times 100\$

5. Divide the two percentages to get PES:

   \$PES = \frac{\%\Delta Q_s}{\%\Delta P}\$

Worked Example

A farmer supplies 200 kg of tomatoes at \$2 per kg. When the price rises to \$3 per kg, the farmer increases supply to 350 kg.

• \$Q{s1}=200\$ kg, \$Q{s2}=350\$ kg
• \$P1= \\$2\$, \$P2= \\$3\$

Percentage change in quantity supplied:

\$\%\Delta Q_s = \frac{350-200}{200}\times100 = \frac{150}{200}\times100 = 75\%\$

Percentage change in price:

\$\%\Delta P = \frac{3-2}{2}\times100 = \frac{1}{2}\times100 = 50\%\$

Price elasticity of supply:

\$PES = \frac{75\%}{50\%} = 1.5\$

Since PES > 1, supply is elastic – the farmer can increase output relatively easily when price rises.

Interpreting PES Values

Quick Check – Try It Yourself!

A manufacturer produces 500 units of a gadget at \$10 each. If the price rises to \$12, output increases to 650 units. Calculate the PES and state whether supply is elastic, inelastic or unit elastic.

Hint: Use the steps above.