Price Elasticity of Supply

Statement

Price elasticity of supply (PES) measures the degree of responsiveness of quantity supplied of a good to a change in its own price, ceteris paribus.

Notes

PES is calculated as

$PES = \frac{\%\,\text{change in quantity supplied}}{\%\,\text{change in own price}}$

Because price and quantity supplied move in the same direction (the law of supply), PES is positive. A good is price elastic when $1 < PES < \infty$ (quantity supplied changes more than proportionately to price) and price inelastic when $0 < PES < 1$ (less than proportionately). The change in quantity supplied this measures is a movement along the curve, not a shift of supply. How PES governs the effect of a demand shift on price and quantity is set out in applying PES.