IGCSE Economics 0455 – Price Elasticity of Supply (PES)
Allocation of Resources – Price Elasticity of Supply (PES)
Learning Objective
Students will be able to draw and interpret supply‑curve diagrams that illustrate different degrees of price elasticity of supply.
1. What is Price Elasticity of Supply?
The price elasticity of supply (PES) measures the responsiveness of the quantity supplied of a good to a change in its price.
\$\$
Es = \frac{\%\Delta Q s}{\%\Delta P}
\$\$
Where:
\(\%\Delta Q_s\) = percentage change in quantity supplied
\(\%\Delta P\) = percentage change in price
2. Determinants of PES
Determinant
Effect on PES
Time period for production
Longer periods → more elastic (producers can adjust inputs)
Availability of inputs
Abundant, easily stored inputs → more elastic
Mobility of factors of production
Highly mobile factors → more elastic
Complexity of the production process
Simple, flexible processes → more elastic
Spare production capacity
Excess capacity → more elastic
3. Types of PES and Their Graphical Representation
Perfectly Inelastic Supply ( \(E_s = 0\) )
Quantity supplied does not change regardless of price.
Suggested diagram: A vertical supply curve at a fixed quantity.
Inelastic Supply ( \(0 < |E_s| < 1\) )
Quantity supplied changes, but proportionally less than the price change.
Suggested diagram: A steep upward‑sloping supply curve.
Unitary Elastic Supply ( \(|E_s| = 1\) )
Percentage change in quantity supplied equals the percentage change in price.
Suggested diagram: A supply curve that is moderately sloped, such that a 10 % price rise leads to a 10 % increase in quantity.
Elastic Supply ( \(|E_s| > 1\) )
Quantity supplied changes proportionally more than the price change.
Suggested diagram: A relatively flat upward‑sloping supply curve.
Perfectly Elastic Supply ( \(|E_s| = \infty\) )
Producers are willing to supply any quantity at a particular price; a tiny price rise leads to an infinite increase in quantity supplied.
Suggested diagram: A horizontal supply curve at the market price.
4. Step‑by‑Step Guide to Drawing Supply Curves for Different PES
Use the same price axis (vertical) and quantity axis (horizontal) for all diagrams to allow comparison.
Label the axes: price (P) on the vertical axis, quantity supplied (Qs ) on the horizontal axis.
Mark a reference point (e.g., P = $10, Qs = 100 units) common to all curves.
For each type of PES:
Perfectly inelastic: draw a vertical line through the reference quantity.
Inelastic: draw a steep upward‑sloping line passing through the reference point.
Unitary elastic: draw a line with a moderate slope such that equal percentage changes in P and Qs are represented.
Elastic: draw a relatively flat upward‑sloping line through the reference point.
Perfectly elastic: draw a horizontal line at the reference price.
Indicate a price change (e.g., from \$10 to \$ 12) and show the corresponding movement along each curve to illustrate the different quantity responses.
5. Interpreting the Diagrams
When the price rises:
On a perfectly inelastic curve, the quantity supplied stays the same.
On an inelastic curve, the quantity supplied rises, but by a smaller proportion than the price increase.
On a unitary elastic curve, the percentage increase in quantity matches the percentage price increase.
On an elastic curve, the quantity supplied rises by a larger proportion than the price increase.
On a perfectly elastic curve, any tiny rise in price would cause the quantity supplied to become arbitrarily large (theoretically infinite).
6. Quick Revision Table
Supply Type
Elasticity \cdot alue (\(E_s\))
Curve Shape
Typical Example
Perfectly Inelastic
0
Vertical
Land (fixed quantity)
Inelastic
0 < |E_s| < 1
Steep
Specialist medical equipment
Unitary Elastic
1
Moderately sloped
Many agricultural products in the short run
Elastic
|E_s| > 1
Flat
Clothing manufacturers with excess capacity
Perfectly Elastic
\(\infty\)
Horizontal
Highly competitive commodity markets (theoretical)
7. Practice Questions
Given a 20 % increase in price leads to a 5 % increase in quantity supplied, calculate the PES and state whether supply is elastic, inelastic or unitary.
Explain why the supply of perishable agricultural produce tends to be more elastic in the long run than in the short run.
Sketch the supply curve for a good with perfectly elastic supply and label the equilibrium price.
8. Summary
Understanding the price elasticity of supply helps economists predict how producers will respond to price changes, which in turn influences resource allocation, market equilibrium, and policy decisions. By mastering the drawing and interpretation of the various supply curves, students can analyse real‑world situations and answer exam questions with confidence.