Price Elasticity of Supply Calculator
This tool calculates the Price Elasticity of Supply (PES) based on changes in price and the quantity supplied. PES measures how responsive the quantity supplied of a good is to a change in its price.
Enter the initial and new price and quantity supplied values below. Ensure consistent units for price and quantity.
Enter Supply Data
Understanding Price Elasticity of Supply (PES)
Price Elasticity of Supply (PES) is an economic measure used to assess the responsiveness of the quantity supplied of a good or service to a change in its market price. It helps understand how quickly and effectively producers can adjust their output levels when prices fluctuate.
PES Formula (Point Elasticity)
The most common way to calculate PES using initial and new values (point elasticity) is:
PES = (% Change in Quantity Supplied) / (% Change in Price)
Where:
% Change in Quantity Supplied = ((Q2 - Q1) / Q1) * 100% Change in Price = ((P2 - P1) / P1) * 100
Substituting these gives:
PES = ((Q2 - Q1) / Q1) / ((P2 - P1) / P1)
Note: This calculator uses the point elasticity formula based on the initial values (P1, Q1). The midpoint formula is sometimes used for larger price changes, but point elasticity is standard when specific 'initial' and 'new' points are given.
Interpreting the PES Value
- PES > 1: Elastic Supply - Quantity supplied changes by a larger percentage than the price change. Producers are relatively responsive to price changes.
- PES < 1: Inelastic Supply - Quantity supplied changes by a smaller percentage than the price change. Producers are relatively unresponsive to price changes.
- PES = 1: Unit Elastic Supply - Quantity supplied changes by the same percentage as the price change.
- PES = 0: Perfectly Inelastic Supply - Quantity supplied does not change at all, regardless of the price change (e.g., unique goods, fixed capacity in the very short run).
- PES = Infinite: Perfectly Elastic Supply - Suppliers are willing to supply any quantity at a specific price, but nothing at a price even slightly lower. (Often theoretical or applies to industries with very easy entry/exit).
PES Examples
Click on an example to see the calculation details:
Example 1: Elastic Supply (Common manufactured goods)
Scenario: When the price of gadget A increases, producers significantly ramp up production.
1. Known Values:
- Initial Price (P1) = $10
- Initial Quantity Supplied (Q1) = 100 units
- New Price (P2) = $12
- New Quantity Supplied (Q2) = 150 units
2. Calculation:
- % Change in Qs = ((150 - 100) / 100) * 100 = (50 / 100) * 100 = 50%
- % Change in P = ((12 - 10) / 10) * 100 = (2 / 10) * 100 = 20%
- PES = 50% / 20% = 2.5
3. Result: PES = 2.5
Conclusion: Supply is Elastic (2.5 > 1).
Example 2: Inelastic Supply (Agricultural crops in the short run)
Scenario: Despite a price increase for oranges after a bad harvest, farmers can't quickly plant and grow more.
1. Known Values:
- Initial Price (P1) = $2 per kg
- Initial Quantity Supplied (Q1) = 5000 kg
- New Price (P2) = $3 per kg
- New Quantity Supplied (Q2) = 5500 kg
2. Calculation:
- % Change in Qs = ((5500 - 5000) / 5000) * 100 = (500 / 5000) * 100 = 10%
- % Change in P = ((3 - 2) / 2) * 100 = (1 / 2) * 100 = 50%
- PES = 10% / 50% = 0.2
3. Result: PES = 0.2
Conclusion: Supply is Inelastic (0.2 < 1).
Example 3: Unit Elastic Supply (Theoretical)
Scenario: A hypothetical good where a price change is matched by an equivalent percentage change in quantity supplied.
1. Known Values:
- Initial Price (P1) = $5
- Initial Quantity Supplied (Q1) = 200 units
- New Price (P2) = $6
- New Quantity Supplied (Q2) = 240 units
2. Calculation:
- % Change in Qs = ((240 - 200) / 200) * 100 = (40 / 200) * 100 = 20%
- % Change in P = ((6 - 5) / 5) * 100 = (1 / 5) * 100 = 20%
- PES = 20% / 20% = 1
3. Result: PES = 1
Conclusion: Supply is Unit Elastic (1 = 1).
Example 4: Perfectly Inelastic Supply (Very short run / Unique items)
Scenario: A famous, unique painting is for sale. No matter how high the price goes, only one is available.
1. Known Values:
- Initial Price (P1) = $1,000,000
- Initial Quantity Supplied (Q1) = 1 painting
- New Price (P2) = $1,500,000
- New Quantity Supplied (Q2) = 1 painting
2. Calculation:
- % Change in Qs = ((1 - 1) / 1) * 100 = (0 / 1) * 100 = 0%
- % Change in P = ((1,500,000 - 1,000,000) / 1,000,000) * 100 = (500,000 / 1,000,000) * 100 = 50%
- PES = 0% / 50% = 0
3. Result: PES = 0
Conclusion: Supply is Perfectly Inelastic (0). Quantity supplied does not respond to price.
Example 5: Perfectly Elastic Supply (Theoretical / commodity market)
Scenario: A commodity like wheat sold by one farmer among many. If the price drops even slightly below the market rate, this farmer (and others) would supply nothing.
1. Known Values:
- Initial Price (P1) = $5 per bushel
- Initial Quantity Supplied (Q1) = 1000 bushels
- New Price (P2) = $5 per bushel
- New Quantity Supplied (Q2) = 2000 bushels (or any different Qs)
2. Calculation:
- % Change in Qs = ((2000 - 1000) / 1000) * 100 = (1000 / 1000) * 100 = 100%
- % Change in P = ((5 - 5) / 5) * 100 = (0 / 5) * 100 = 0%
- PES = 100% / 0% = Infinite
3. Result: PES = Infinite
Conclusion: Supply is Perfectly Elastic (Infinite). A change in quantity occurs with no change in price (or an infinitesimal price change).
Example 6: Elastic Supply (Manufacturing with excess capacity)
Scenario: A factory operating below full capacity can easily increase output if the price of its product rises.
1. Known Values:
- Initial Price (P1) = $50
- Initial Quantity Supplied (Q1) = 500 units
- New Price (P2) = $60
- New Quantity Supplied (Q2) = 800 units
2. Calculation:
- % Change in Qs = ((800 - 500) / 500) * 100 = (300 / 500) * 100 = 60%
- % Change in P = ((60 - 50) / 50) * 100 = (10 / 50) * 100 = 20%
- PES = 60% / 20% = 3
3. Result: PES = 3
Conclusion: Supply is Elastic (3 > 1).
Example 7: Inelastic Supply (Housing in the short run)
Scenario: An increase in housing prices in a desirable area. Construction takes time, so the number of houses available doesn't immediately jump significantly.
1. Known Values:
- Initial Price (P1) = $400,000
- Initial Quantity Supplied (Q1) = 100 houses
- New Price (P2) = $450,000
- New Quantity Supplied (Q2) = 105 houses
2. Calculation:
- % Change in Qs = ((105 - 100) / 100) * 100 = (5 / 100) * 100 = 5%
- % Change in P = ((450,000 - 400,000) / 400,000) * 100 = (50,000 / 400,000) * 100 = 12.5%
- PES = 5% / 12.5% = 0.4
3. Result: PES = 0.4
Conclusion: Supply is Inelastic (0.4 < 1).
Example 8: Elastic Supply (Online digital service)
Scenario: An online service provider can easily scale up users (supply) if the subscription price increases, with minimal extra cost.
1. Known Values:
- Initial Price (P1) = $20 / month
- Initial Quantity Supplied (Q1) = 1000 subscriptions
- New Price (P2) = $22 / month
- New Quantity Supplied (Q2) = 1300 subscriptions
2. Calculation:
- % Change in Qs = ((1300 - 1000) / 1000) * 100 = (300 / 1000) * 100 = 30%
- % Change in P = ((22 - 20) / 20) * 100 = (2 / 20) * 100 = 10%
- PES = 30% / 10% = 3
3. Result: PES = 3
Conclusion: Supply is Elastic (3 > 1).
Example 9: Inelastic Supply (Artisanal, handcrafted goods)
Scenario: A single artisan making unique pottery. Even if prices rise, their output is limited by the time and skill required.
1. Known Values:
- Initial Price (P1) = $100 per piece
- Initial Quantity Supplied (Q1) = 10 pieces per month
- New Price (P2) = $150 per piece
- New Quantity Supplied (Q2) = 12 pieces per month
2. Calculation:
- % Change in Qs = ((12 - 10) / 10) * 100 = (2 / 10) * 100 = 20%
- % Change in P = ((150 - 100) / 100) * 100 = (50 / 100) * 100 = 50%
- PES = 20% / 50% = 0.4
3. Result: PES = 0.4
Conclusion: Supply is Inelastic (0.4 < 1).
Example 10: Unit Elastic Supply (Another case)
Scenario: A market scenario where the percentage change in price perfectly matches the percentage change in quantity supplied.
1. Known Values:
- Initial Price (P1) = $25
- Initial Quantity Supplied (Q1) = 500 units
- New Price (P2) = $30
- New Quantity Supplied (Q2) = 600 units
2. Calculation:
- % Change in Qs = ((600 - 500) / 500) * 100 = (100 / 500) * 100 = 20%
- % Change in P = ((30 - 25) / 25) * 100 = (5 / 25) * 100 = 20%
- PES = 20% / 20% = 1
3. Result: PES = 1
Conclusion: Supply is Unit Elastic (1 = 1).
Frequently Asked Questions about Price Elasticity of Supply
1. What does Price Elasticity of Supply (PES) measure?
PES measures how sensitive or responsive the quantity supplied of a good or service is to a change in its price.
2. What is the main formula for PES?
The basic formula is: PES = (% Change in Quantity Supplied) / (% Change in Price). Using initial and new values, it's often calculated as ((Q2 - Q1) / Q1) / ((P2 - P1) / P1).
3. What does it mean if PES > 1?
If PES is greater than 1, supply is considered elastic. This means the quantity supplied changes proportionally more than the price changes.
4. What does it mean if PES < 1?
If PES is less than 1, supply is considered inelastic. This means the quantity supplied changes proportionally less than the price changes.
5. What is unit elastic supply?
Unit elastic supply occurs when PES = 1. The percentage change in quantity supplied is exactly equal to the percentage change in price.
6. What is perfectly inelastic supply (PES = 0)?
Perfectly inelastic supply means the quantity supplied does not change at all, regardless of any change in price. This might occur in the very short run or for unique items.
7. What is perfectly elastic supply (PES = Infinite)?
Perfectly elastic supply means that suppliers are willing to supply any quantity at a specific price, but none at a lower price. This is often a theoretical concept for markets with easy entry/exit.
8. What factors influence PES?
Key factors include: time period (supply is often more elastic in the long run), availability of inputs, mobility of resources, ease of storing the good, and existence of excess capacity.
9. Why is PES important?
Understanding PES helps businesses predict how sales will respond to price changes, helps governments predict the impact of taxes or subsidies, and helps analyze market dynamics and price volatility.
10. Can PES be negative?
In typical supply curves, price and quantity supplied move in the same direction (as price increases, quantity supplied increases). Therefore, the percentage changes usually have the same sign, resulting in a positive PES. A negative PES would imply an inverse relationship, which is not standard for supply.
