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The PES formula is: PES = percentage change in quantity supplied ÷ percentage change in price. Free GCSE AQA Economics notes and 15 questions answered.
Understanding Price Elasticity of Supply is part of How prices are determined in GCSE AQA Economics.
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The PES formula is: PES = percentage change in quantity supplied ÷ percentage change in price. Free GCSE AQA Economics notes and 15 questions answered.
Use this lesson to stay inside How prices are determined while connecting the detail back to the wider How markets work topic.
Read the core explanations from Understanding Price Elasticity of Supply before testing yourself from memory.
Imagine you run a small bakery and the price of sourdough bread suddenly doubles because of a new food trend. You would love to bake twice as many loaves, but can you? It depends. If you have a spare oven, extra flour in stock, and a baker who can work longer hours, then yes -- you can respond quickly. But if you are already at full capacity, you might need months to hire new staff or buy new equipment before you can increase supply.
This idea -- that changes in price do not always cause equivalent changes in supply -- is at the heart of price elasticity of supply (PES). Some goods can be produced quickly and easily in greater quantities when prices rise. Others cannot. Understanding this helps us predict how markets behave, why some prices are more volatile than others, and why certain industries struggle to meet sudden increases in demand.
The key idea is simple: when price goes up, firms want to supply more because they can earn more revenue. But how much more they can supply depends on practical factors. PES puts a number on this responsiveness. If PES is greater than 1, supply is price elastic -- producers respond strongly to price changes. If PES is less than 1, supply is price inelastic -- producers struggle to change output much, even when prices move significantly.
| PES Value | Description | What It Means | Example |
|---|---|---|---|
| PES = 0 | Perfectly inelastic | Quantity supplied cannot change at all regardless of price | Land in central London -- there is a fixed amount |
| 0 < PES < 1 | Inelastic | Quantity supplied changes less proportionally than price | UK wheat -- takes a full growing season to increase output |
| PES = 1 | Unitary elastic | Quantity supplied changes in exact proportion to price | Rare in practice -- a theoretical benchmark |
| PES > 1 | Elastic | Quantity supplied changes more proportionally than price | Digital music downloads -- can be replicated instantly at near-zero cost |
| PES = infinity | Perfectly elastic | Any quantity can be supplied at the current price | Mass-produced standardised goods with huge spare capacity |
Worked example: Calculating Price Elasticity of Supply
A UK strawberry farm currently supplies 10,000 punnets per month at a price of £2.00 each. The price rises to £2.50 per punnet and the farm increases supply to 11,500 punnets. Calculate the PES and state whether supply is elastic or inelastic.
Method: Use the PES formula: percentage change in quantity supplied ÷ percentage change in price
Answer: PES = 0.6. Supply is price inelastic because PES < 1. The percentage increase in quantity supplied (15%) was less than the percentage increase in price (25%).
Why is the supply of some goods elastic while others are inelastic? Several factors determine how easily producers can increase output when prices rise. These are essential to understand for your exam, because questions often ask you to explain why PES differs between products or industries.
Time is the single most important factor affecting PES. In the very short run (momentary supply), firms can only sell what they already have in stock. In the short run, they can adjust variable factors like labour hours, but cannot change fixed factors like factory size. In the long run, firms can build new factories, enter new markets, and fully adjust capacity.
Consider UK house building. If house prices rise sharply today, builders cannot instantly produce more homes. Planning permission takes months, construction takes years. In the short run, housing supply is very inelastic. But over 5-10 years, developers can buy land, gain planning permission, and build new estates -- supply becomes more elastic over time.
If a firm has unused machinery, empty warehouse space, or workers on short-time contracts, it can increase output quickly without needing major new investment. This makes supply more elastic. A car manufacturer running its factory at 60% capacity can ramp up production relatively quickly if car prices rise. But a factory already running 24/7 at full capacity has no room to expand without building a whole new production line.
During recessions, many UK firms operate below full capacity, so supply tends to be more elastic. During economic booms, when firms are stretched to their limits, supply becomes more inelastic.
If a firm holds large stocks (inventories) of finished goods, it can respond immediately to a price increase by releasing stock onto the market. This makes supply elastic in the short run. Supermarkets, for example, hold buffer stocks of tinned and dried goods, so they can quickly increase the quantity available on shelves.
However, not all goods can be stored easily. Fresh flowers, daily newspapers, and perishable food cannot be stockpiled. A florist cannot hold large stocks of roses for months waiting for Valentine's Day prices to peak -- the roses would wilt. This makes the supply of perishable goods more inelastic.
Some firms can easily switch their resources from producing one good to another. A textile factory making T-shirts could relatively quickly switch to producing hoodies if hoodie prices rise -- the same sewing machines and workers can be used. This factor mobility makes supply more elastic.
But a firm producing a highly specialised product -- like jet engines or pharmaceutical drugs -- cannot easily switch production. The machinery, skills, and regulatory requirements are unique to that product. This makes supply inelastic. Similarly, a UK farmer growing wheat cannot instantly switch to growing avocados if avocado prices rise, because the climate and growing conditions are completely different.
| Factor | Makes Supply More Elastic | Makes Supply More Inelastic |
|---|---|---|
| Time period | Long run -- firms can fully adjust all factors of production | Short run -- firms limited by fixed factors like factory size |
| Spare capacity | Firm has unused resources (idle machinery, part-time staff) | Firm is already at full capacity (running 24/7) |
| Availability of stocks | Large inventories of finished goods ready to sell | No stocks available (perishable goods, made-to-order products) |
| Ease of switching production | Resources can easily be transferred between products | Highly specialised equipment/skills that cannot be redeployed |
Agricultural goods in the UK typically have inelastic supply, especially in the short run. If the price of British wheat rises in March, farmers cannot produce more wheat until the next harvest in August. Crops have fixed growing seasons, farmers face land constraints, and weather is unpredictable. Even if wheat prices doubled, a farmer could not conjure up extra wheat overnight. This is why agricultural prices can be very volatile -- supply cannot adjust quickly to changes in demand or weather shocks.
Digital goods, by contrast, tend to have highly elastic supply. Consider a UK indie game developer who releases a game on Steam. If the game suddenly goes viral and demand surges, the developer does not need to produce more physical copies -- digital downloads can be replicated instantly at virtually zero marginal cost. The same applies to e-books, music streaming, software, and online courses. There is no spare capacity constraint, no inventory issue, and no production delay. This is why digital markets can scale so rapidly.
PES has important real-world consequences. When supply is inelastic and demand increases, prices rise sharply because producers cannot increase output quickly enough to meet the extra demand. This benefits existing producers (who earn higher prices) but harms consumers (who pay more). The UK housing market is a classic example: strong demand meets very inelastic supply, pushing house prices to levels that many first-time buyers cannot afford.
When supply is elastic, an increase in demand leads to a larger increase in quantity supplied and only a small rise in price. Consumers benefit because the market can absorb higher demand without prices spiralling. Producers benefit because they can expand sales volumes quickly. This is typical in manufacturing industries with spare capacity. For instance, if demand for UK-made biscuits rises, factories can increase production relatively quickly using existing equipment, keeping prices stable.
Worked example: Analysing PES and Its Impact on Price
The price of UK-grown organic vegetables rises from £3.00 to £3.60 per kilogram. A farmer increases supply from 800 kg to 880 kg per week. (a) Calculate the PES. (b) Explain one reason why the supply of organic vegetables is likely to be price inelastic. (c) Explain one consequence of this inelastic supply for consumers.
Method: Calculate PES, then use knowledge of supply factors and their implications.
Answer: (a) PES = 0.5 (inelastic). (b) Organic vegetables have a long growing period and strict certification requirements, preventing quick increases in output. (c) Inelastic supply means prices rise sharply when demand increases, making organic produce less affordable for consumers.
Price elasticity of supply measures how well producers can respond to price changes. The four key factors -- time period, spare capacity, availability of stocks, and ease of switching production -- determine whether supply is elastic or inelastic. In the UK economy, agricultural goods and housing tend to have inelastic supply, while manufactured and digital goods tend to have elastic supply. Understanding PES helps explain why some markets experience wild price swings while others remain stable, and why some industries can grow rapidly while others are constrained.
Published by Revise Right. Use the official specification reference to check the requirements for your course. Content updated: 2026-03-24.
Move to the related lessons or back to the topic page when you need the wider sequence before exam-style practice.
The PES formula is: PES = percentage change in quantity supplied ÷ percentage change in price. Each percentage change is the new value minus the original value, divided by the original value, multiplied by 100. For example, a 15% rise in quantity supplied after a 25% price rise gives PES = 15% ÷ 25% = 0.6.
Price elasticity of supply (PES) is a measure of the responsiveness of quantity supplied to a change in price. It is calculated as PES = percentage change in quantity supplied ÷ percentage change in price, and it is always positive because supply curves slope upwards.
Perfectly inelastic supply means PES = 0, so quantity supplied cannot change at all regardless of price. Land in central London is an example because there is a fixed amount. Perfectly elastic supply, where PES = infinity, means any quantity can be supplied at the current price.
PES is calculated by dividing the percentage change in quantity supplied by the percentage change in price. For example, if a strawberry farm raises supply from 10,000 to 11,500 punnets (a 15% rise) when the price rises from £2.00 to £2.50 (a 25% rise), PES = 15% ÷ 25% = 0.6, so supply is price inelastic.
Supply is price elastic when PES is greater than 1, meaning producers respond strongly to price changes. Supply is price inelastic when PES is less than 1, meaning producers struggle to change output much, even when prices move significantly.
Spare capacity makes price elasticity of supply more elastic because a firm with unused machinery, empty warehouse space or workers on short-time contracts can increase output quickly without major new investment. A car manufacturer running its factory at 60% capacity can ramp up production if car prices rise, but a factory already running 24/7 at full capacity cannot.
Agricultural goods have inelastic supply in the short run because crops have fixed growing seasons, farmers face land constraints and weather is unpredictable. If the price of British wheat rises in March, farmers cannot produce more wheat until the next harvest in August, which is why agricultural prices can be very volatile.
PES (price elasticity of supply) measures the responsiveness of quantity supplied to a change in price, while PED (price elasticity of demand) measures the responsiveness of quantity demanded. Mixing them up leads to incorrect analysis, so a question about supply responsiveness needs PES and a question about demand responsiveness needs PED.
The supply of digital goods is highly elastic because downloads can be replicated instantly at virtually zero marginal cost. There is no spare capacity constraint, no inventory issue and no production delay, so a game, e-book or piece of software that suddenly goes viral can be supplied in far greater quantities at once.
Supply tends to be more elastic in a recession because many UK firms are not at full capacity, so they have spare resources to increase output quickly when prices rise. During economic booms, when firms are stretched to their limits, supply becomes more inelastic because there is no room to expand without new investment.
The availability of stocks makes supply more elastic because a firm holding large inventories of finished goods can respond immediately to a price increase by releasing stock onto the market. Goods that cannot be stockpiled, such as fresh flowers, daily newspapers and perishable food, have more inelastic supply.
Ease of switching production makes supply more elastic when resources can be moved easily from one good to another. A textile factory making T-shirts could quickly switch to hoodies using the same sewing machines and workers, but a firm producing jet engines or pharmaceutical drugs cannot switch, so its supply is inelastic.
Time is the single most important factor affecting price elasticity of supply. In the very short run firms can only sell what they already have in stock, in the short run they can adjust variable factors such as labour hours, and in the long run they can build new factories and fully adjust capacity.
When supply is inelastic and demand increases, prices rise sharply because producers cannot increase output quickly enough to meet the extra demand. This benefits existing producers, who earn higher prices, but harms consumers, who pay more; the UK housing market is a classic example of strong demand meeting very inelastic supply.
When supply is elastic, an increase in demand leads to a larger increase in quantity supplied and only a small rise in price. Consumers benefit because the market can absorb higher demand without prices spiralling, and producers benefit because they can expand sales volumes quickly, as with UK-made biscuits from factories with spare capacity.