1.2.3

Elasticity of Supply

Test yourself on Elasticity of Supply

Test your knowledge with free interactive questions on Seneca — used by over 10 million students.

Price Elasticity of Supply

The price elasticity of supply measures how the quantity of supply reacts to a change in price.

Price elasticity of supply

Price elasticity of supply

  • PES = % change in quantity supplied ÷ % change in price.
  • So an elasticity of supply greater than one means that the percentage change in quantity supplied will be greater than a one % price change.
Elastic, inelastic, unit elastic

Elastic, inelastic, unit elastic

  • Elastic supply, PES > 1.
    • So a higher PES value means more elastic supply.
  • Inelastic supply, 1 > PES > 0
    • So a smaller PES value means more inelastic supply.
  • Unit elasticity of supply, PES = 1.
    • Percentage change in quantity supplied = percentage change in price.
High elasticity of supply is usually good

High elasticity of supply is usually good

  • Firms aim for high elasticity of supply so that they can react rapidly to changes in price and demand.
  • To increase elasticity, firms can:
    • Improve their technology.
    • Introduce flexible working patterns.
    • Have excess production capacity.

Factors Affecting the Price Elasticity of Supply

There are a number of factors that influence the price elasticity of supply.

Agility

Agility

  • Firms that are agile keep high levels of stock.
  • This makes supply price elastic as they can quickly respond to increases in demand by releasing more stock.
  • More generally, firms with agile factor mobility will be more price elastic in supply.
Recessionary period

Recessionary period

  • During periods of high unemployment, we tend to see a more elastic supply.
  • This is because if a firm tried to expand their production, they would have a larger pool of labour to hire.
  • Their ability to attract this labour is also high.
Perishable goods

Perishable goods

  • Products that are likely to perish because of weather conditions will have a more inelastic supply.
    • E.g crops and agriculture.

Elasticity of Supply in the Long and Short Run

Supply is often more elastic in the long run. Not all firms have the same concept of short and long run time periods.

Short run

Short run

  • Capacity is fixed.
  • One or more factors of production are fixed (usually capital).
  • Often hard to increase production in this period.
  • Supply = inelastic.
Long run

Long run

  • No factors of production are fixed - all are variable.
  • Firms are able to increase capacity.
  • Supply = more elastic in the short run. Firms have more time to react to price and demand shifts.
Time periods by industry

Time periods by industry

  • Capital equipment and production times differ across industries. This means that different industries have different time scales for the short run and the long run.
    • E.g the long run is probably shorter for a software company like Facebook than a aeroplane manufacturer like Airbus.
Jump to other topics
1

Microeconomics

1.1

Competitive Markets: Demand & Suply

1.1.1Markets & Demand1.1.2Diminishing Marginal Returns1.1.3Supply1.1.4Market Equilibrium1.1.5Price Mechanism1.1.6Consumer & Producer Surplus1.1.7IB Multiple Choice - Demand1.1.8IB Multiple Choice - Supply
1.2

Elasticity

1.2.1Elasticities of Demand1.2.2Factors Affecting Price Elasticity of Demand1.2.3Elasticity of Supply1.2.4Price Elasticity of Supply1.2.5IB Multiple Choice - Price Elasticity of Demand1.2.6IB Multiple Choice - Price Elasticity of Supply1.2.7IB Multiple Choice - Other Elasticities
1.3

Government Intervention

1.3.1Indirect Taxes & Subsidies1.3.2Application Question - Taxing Prices or Quantities1.3.3Subsidies & Price Controls1.3.4Deadweight Loss & Government Intervention1.3.5Elasticity & Tax Incidence1.3.6IB Multiple Choice - Government Intervention
1.4

Market Failure

1.4.1Types of Market Failure1.4.2Introduction to Externalities1.4.3Negative Externalities1.4.4Policy for Negative Externalities1.4.5Positive Externalities1.4.6The Deadweight Welfare Loss of Externalities1.4.7Case Study - The Externalities of Education1.4.8Public Goods & the Free-Rider Problem1.4.9Asymmetric Information1.4.10End of Topic Test - Market Failure1.4.11Application Questions - Market Failure
1.5

HL: Theory of the Firm & Market Structures

1.5.1Theory of the Firm & Market Structures
2

Macroeconomics

2.1

The Level of Overall Economic Activity

2.1.1The Circular Flow of Income2.1.2Defining GDP2.1.3Limitations of GDP2.1.4IB Multiple Choice - Economic Indicators2.1.5Business Cycles2.1.6Output Gaps
2.2

Aggregate Demand & Aggregate Supply

2.2.1The Aggregate Demand Curve2.2.2Components of Aggregate Demand2.2.3Shape of the Aggregate Demand Curve2.2.4Shifts in Aggregate Demand2.2.5IB Multiple Choice - Aggregate Demand2.2.6Short & Long-Run Aggregate Supply2.2.7Alternative Models of LRAS2.2.8Equilibrium in the AD-AS Model2.2.9Output Gaps & the AD-AS Model
2.3

Macroeconomic Objectives

2.3.1Introduction to Unemployment2.3.2Limitations of Unemployment2.3.3Types of Unemployment2.3.4Causes & Impact of Unemployment2.3.5Defining Inflation2.3.6Measuring Inflation2.3.7Use of Index Numbers2.3.8The Consumer Price Index2.3.9Consequences of Inflation2.3.10Causes of Inflation2.3.11Inflation & Unemployment Tradeoff2.3.12The Short-Run Phillips Curve2.3.13The Long-Run Phillips Curve
2.4

Economic Growth, Poverty & Inequality

2.4.1Measuring Economic Growth2.4.2Determinants of Productivity2.4.3Economic Growth & Productivity2.4.4Absolute & Relative Poverty2.4.5Inequality2.4.6Inequality 22.4.7Lorenz Curve2.4.8Government Policy on Poverty2.4.9End of Topic Test - Poverty & Inequality2.4.10Application - Inequality & Poverty
2.5

Fiscal Policy

2.5.1Introduction to Fiscal Policy2.5.2Fiscal Policy and AD-AS Model2.5.3Fiscal Policy Lags2.5.4Automatic Stabilizers2.5.5IB Multiple Choice - Fiscal Policy
2.6

Monetary Policy

2.6.1Objectives of Monetary Policy2.6.2Monetary Policy Implementation2.6.3Monetary Policy & AD-AS Model2.6.4Monetary Policy Lags & Pitfalls
2.7

Supply-Side Policies

2.7.1Supply-Side Policies2.7.2Supply-Side Policies 2
3

The Global Economy

3.1

International Trade

3.1.1Globalisation3.1.2Globalisation for LEDCs3.1.3Globalisation for MEDCs3.1.4Comparative Advantage & Trade3.1.5Protectionism3.1.6Arguments for Protectionism3.1.7Arguments Against Protectionism3.1.8End of Topic Test - Globalisation & Trade3.1.9Case Study - Globalisation & Trade
3.2

Exchange Rates

3.2.1Floating Exchange Rates3.2.2Fixed Exchange Rate3.2.3Effect of a Stronger & Weaker Dollar
3.3

The Balance of Payments

3.3.1Balance of Payments3.3.2Balance of Payments 23.3.3FDI & Reducing a BoP Deficit
3.4

Economic Integration

3.4.1Customs Unions & WTO3.4.2Merged Currency
3.5

Terms of Trade

3.5.1Absolute & Comparative Advantage3.5.2Gains from Trade3.5.3Terms of Trade3.5.4IB Multiple Choice - Comparative Advantage & Trade
3.6

Economic Development

3.6.1Factors Influencing Growth & Development3.6.2International Institutions3.6.3Measures of Development3.6.4Barriers to Development3.6.5Case Study - The Bottom Billion3.6.6End of Topic Test - Emerging & Developing
3.7

The Role of Domestic & International Factors

3.7.1Interventionist Strategies3.7.2Development Strategies3.7.3Development Promotion Policies3.7.4End of Topic Test - Growth & Global Development3.7.5Application Questions -Growth & Global Development
3.8

The Role of International Trade

3.8.1International Institutions3.8.2End of Topic Test - Globalisation & Trade
3.9

The Role of Foreign Aid

3.9.1Aid3.9.2Limitations of Aid3.9.3Support for Aid3.9.4Application Questions - Developing Countries

Practice questions on Elasticity of Supply

Can you answer these? Test yourself with free interactive practice on Seneca — used by over 10 million students.

  1. 1
    To increase elasticity, firms can:Fill in the list
  2. 2
    Which of the following has a price elasticity of supply value greater than one?Multiple choice
  3. 3
    To increase elasticity of supply, firms can:True / false
  4. 4
    Factors affecting the elasticity of supply:Fill in the list
  5. 5
    What are firms with agile factor mobility said to be?Multiple choice
Answer all questions on Elasticity of Supply

Unlock your full potential with Seneca Premium

  • Unlimited access to 10,000+ open-ended exam questions

  • Mini-mock exams based on your study history

  • Unlock 800+ premium courses & e-books

Get started with Seneca Premium

Factors Affecting Price Elasticity of Demand

Price Elasticity of Supply