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Educerie · IB Diploma · Economics
Unit 2 Microeconomics · 2.6 Elasticity of supply
What you must be able to do
| You must be able to | Level | What it looks like in the exam |
|---|---|---|
| Define price elasticity of supply and state the formula | SL, HL | "Define price elasticity of supply" (2 marks) |
| Calculate PES from data you are given | SL, HL | Paper 2 or Paper 3: a short table, "calculate the PES" (2–3 marks) |
| Work backwards from a PES to a change in price or in quantity supplied | SL, HL | Paper 2 or Paper 3: "calculate the new quantity supplied" |
| Name the degrees of PES and the range of values it can take | SL, HL | Follows almost every calculation: "comment on your answer" |
| Draw relatively elastic and relatively inelastic supply | SL, HL | Any diagram question; the axes, curve and labels carry marks of their own |
| Draw the three constant-PES cases: perfectly elastic, perfectly inelastic, unitary | SL, HL | "Using a diagram, explain what perfectly inelastic supply means" |
| Explain the five determinants of PES | SL, HL | "Explain two factors that determine the PES of…" (4 marks) |
| Explain why the PES for primary commodities is generally lower than for manufactured products | HL only | Paper 1 part (a), or a Paper 3 explanation about commodity prices |
Before you start
You need the supply curve from 2.2: producers supply more at a higher price, and only the good's own price moves you along the curve. You need percentage change, which is (new − old) ÷ old × 100. If you have done 2.5 you already know the method, because elasticity of demand and elasticity of supply are built the same way; only the top line of the fraction changes.
1The idea in one paragraph
A higher price tells producers to make more. Elasticity of supply asks how loudly that message lands. In some markets producers can double output in a week; in others they can do nothing at all for a year, however high the price goes. Price elasticity of supply, written PES, is the number that measures the difference, and it comes down to one thing: how easily a firm can get hold of more resources, and how fast.
2The formula
Price elasticity of supply is a measure of how responsive quantity supplied is to a change in the good's own price. It is a ratio of two percentages:
PES = percentage change in quantity supplied ÷ percentage change in price. Quantity on the top, price underneath, always in that order.
Take Karagöl Greenhouses, which sells tomatoes. The price rises from €2.00 a kilogram to €2.50, and over the following weeks the quantity Karagöl supplies rises from 800 kg to 920 kg.
Work out each percentage change first, on its own line.
- Price: (2.50 − 2.00) ÷ 2.00 × 100 = +25%
- Quantity supplied: (920 − 800) ÷ 800 × 100 = +15%
Then divide: PES = 15 ÷ 25 = 0.6. Figure 1 is that calculation drawn.
Two habits to build now. PES is normally positive, because price and quantity supplied move in the same direction, so both percentages carry the same sign. That is the opposite of PED, and the minus sign does not travel across from the demand chapter. And PES has no units: a percentage divided by a percentage cancels the euros and the kilograms, so "0.6 kg per euro" scores nothing.
3Reading the number: the degrees of PES
The number on its own is not an answer; you have to say what it means. PES can take any value from zero upwards, and you need the whole of that theoretical range.
| Value of PES | Name | What it means in words |
|---|---|---|
| 0 | Perfectly inelastic supply | Quantity supplied does not change at all, whatever the price does |
| Between 0 and 1 | Relatively inelastic supply | Quantity supplied changes by a smaller percentage than price |
| Exactly 1 | Unit elastic supply | Quantity supplied changes by the same percentage as price |
| Between 1 and infinity | Relatively elastic supply | Quantity supplied changes by a larger percentage than price |
| Infinity | Perfectly elastic supply | Producers will supply any quantity at one price, and nothing at all above it |
So Karagöl's 0.6 means supply is relatively inelastic: a 25% rise in price brought a rise in quantity supplied of only 15%. Compare a small T-shirt printing workshop, where a price rise from €8.00 to €8.80 (+10%) takes weekly output from 5,000 shirts to 6,500 (+30%). PES = 30 ÷ 10 = 3, relatively elastic. The same proportional pull on the price gets three times as much movement out of the workshop as out of the greenhouse.
"Comment on your answer" always wants the same two-part sentence: name the degree, then say what it means about producers. "PES is 0.6, so supply is price inelastic: these growers cannot expand output much in the time available."
4Relatively elastic and relatively inelastic supply
Figure 2 puts the two side by side. Both markets get the same rise in price, from P₁ to P₂. What differs is how far the quantity moves.
The steeper curve is the inelastic one: quantity supplied barely shifts, so the top of the fraction is small and PES comes out below 1. The flatter curve is elastic, because quantity supplied travels a long way and the top of the fraction is large.
One caution about steepness. It is a fair guide only when both curves are drawn on the same axes with the same scale, as they are here; stretch the quantity axis on one of them and it looks flatter without being any more elastic. The number is the test, the picture is the illustration.
5Constant PES: three curves that never change their mind
On most supply curves PES varies as you move along. Three shapes are different: their PES is the same at every point, and these are the ones the guide asks you to draw.
Perfectly inelastic supply, PES = 0. A vertical line: the quantity is fixed and no price will move it. Think of the seats in a concert hall on the night, or the paintings a dead artist left behind.
Perfectly elastic supply, PES = ∞. A horizontal line. Producers will supply as much as anyone wants at that one price, and not a unit above it. Both are in Figure 3.
Unit elastic supply, PES = 1. This is the case students get wrong, so learn the rule as a picture. Any straight supply curve that passes through the origin has a PES of exactly 1, all the way along, no matter how steep or how flat it is.
Why does it work? A line through the origin makes quantity supplied a fixed multiple of price. Double the price and you double the quantity; add a tenth to the price and you add a tenth to the quantity. The two percentage changes are equal by construction, so the fraction is always 1. Notice what that does to the "steep means inelastic" habit: S₁ in Figure 4 is steep, S₃ is flat, and both are unit elastic.
Where the line starts is what actually decides the degree, and Figure 5 shows all three cases together.
A straight supply curve that cuts the price axis is elastic along its whole length; one through the origin is unit elastic; one that cuts the quantity axis is inelastic. Learn the three positions and you can read the degree off a diagram before doing any arithmetic.
6The five determinants of PES
Five things decide whether a producer can respond. Learn all five with an example each: a four-mark question wants two explained properly, not five listed.
Time. The most powerful one. Immediately after a price rise almost nothing can be changed, so supply is close to perfectly inelastic. Over a few months a firm can hire staff, order materials and run longer shifts. Over years it can build another factory or plant another orchard. Figure 6 draws the same price rise with three lengths of time to react.
This is why a PES answer should always name a time frame. "Supply is inelastic" is half an answer; "supply is inelastic in the short run, because a new greenhouse takes a season to build" is a whole one.
Mobility of factors of production. Mobility means how easily land, labour and capital can be moved from producing one thing to producing another. A printing workshop can switch a machine from mugs to T-shirts in an afternoon, so its supply is elastic. A copper mine cannot become anything else, and a nurse cannot be retrained overnight as a surgeon, so those factors are immobile and supply is inelastic.
Unused capacity. Spare capacity is machinery, buildings and workers a firm already has but is not fully using. A workshop running one shift out of three can double output quickly; a workshop already running flat out cannot, whatever the price. Figure 7 shows both states on one curve, so the same firm has different PES on different days depending on where it sits.
Ability to store. A producer holding stocks, meaning finished goods kept in a warehouse, can release them the moment the price rises without producing anything new, which makes supply elastic. Tinned beans and steel bars store well. Fresh milk, cut flowers and Saturday's football tickets do not store at all, and their supply is much less elastic.
The rate at which costs increase. Pushing output up usually raises cost per unit: overtime is paid, older machines come back into use, inputs come from dearer suppliers. If costs rise gently the firm keeps expanding and supply is elastic; if they rise steeply it stops early even though the price is high, and supply is inelastic. That is the shape of the curve in Figure 7, gentle while there is spare capacity and sharp once there is none.
7Working backwards: finding a change in price or in quantity supplied
Paper 2 and Paper 3 also ask this the other way round: they give you PES and one of the changes and want the other. Rearrange the same formula.
- percentage change in quantity supplied = PES × percentage change in price
- percentage change in price = percentage change in quantity supplied ÷ PES
Example one. A bakery's PES for sourdough is 0.4 and the price rises by 15%. Percentage change in quantity supplied = 0.4 × 15 = +6%. If it had been baking 500 loaves a week, it now bakes 500 × 1.06 = 530 loaves.
Example two. A workshop has a PES of 2.5 for printed mugs and wants quantity supplied to rise by 20%. Percentage change in price = 20 ÷ 2.5 = +8%, so a price of €5.00 must go to €5.40.
Show the percentage change first and the new level second. There is a mark for the working even when the final number slips.
8HLWhy primary commodities have a lower PES than manufactured products
SL readers can stop here. HL students must explain a pattern that runs through the global economy: primary commodities, meaning goods taken straight from the land or the sea such as coffee, wheat, copper and crude oil, almost always have a lower PES than manufactured products, meaning goods made in factories from those raw materials. Four reasons, each of them a determinant from section 6 applied to farming, mining and fishing.
The production period is fixed by nature, not by the firm. Coffee bushes take three to four years to bear a crop and wheat takes a season, so a high price in March cannot produce more wheat in April. A T-shirt factory that gets a high price in March prints more shirts that week.
The factors of production are immobile and specific. A coffee plantation is land planted with coffee on a hillside with the right rainfall, and land suited to it is limited. A factory's machines, workers and floor space can usually be switched to another product line.
There is little spare capacity to bring on quickly. Sinking a mine shaft or clearing new farmland takes years and a great deal of capital; a factory can add a night shift or lease another machine within weeks.
Costs rise steeply as output expands. The best land and the richest ore are already in use, so squeezing more out means poorer soil and thinner seams and costs climb fast. A factory adding a shift faces a gentler climb.
Now the consequence, which is what a Paper 3 question is after. Figure 8 puts the same increase in demand into both markets.
Where supply is inelastic, an increase in demand runs into a wall of fixed output, so nearly all of the adjustment happens in the price and it jumps. Where supply is elastic, the extra demand is absorbed as extra output and the price barely moves. The swings run both ways: a good harvest can send a price down as violently as a bad one sends it up.
That instability is not just a graph. A country whose export earnings come mostly from one or two commodities cannot plan its budget, and its farmers' incomes rise and fall with a price they had no part in setting. The problems that volatility creates for commodity-dependent economies are a rewarding thing to investigate further.
9Where marks are lost
Putting a minus sign in front of PES. That belongs to elasticity of demand. Supply slopes upward, both percentages have the same sign, and PES is positive.
Dividing the wrong way up. Price on top gives you the reciprocal and the wrong degree. Quantity supplied goes on top, every time.
Using the change instead of the percentage change. "Quantity rose by 120 and price by 0.50, so PES = 240" is the commonest arithmetic error here. Convert both to percentages first, then divide.
Calling a steep line through the origin inelastic. It is unit elastic, and so is a flat one. Look at where the line starts before you judge it, as in Figure 5.
Answering without a time frame. A market with inelastic supply this week may have elastic supply next year, and saying so is often where the analysis mark sits.
Treating PES as a reason for the curve to shift. PES describes the shape of the supply curve, not its position. A change in price moves you along the curve; PES tells you how far that move goes. HL: claiming primary commodities always have PES = 0. They are relatively inelastic, not perfectly inelastic: farmers can release stored grain, harvest more intensively, or plant more next season. Say "low", not "zero".
10Draw it right
Every PES diagram in an exam should carry all of the following.
- A title, or a caption in your text: "Figure 1: the supply of tomatoes".
- Axes labelled P and Q, price vertical, with units where you have them.
- The curve labelled S. If you are comparing two, label them S₁ and S₂ and say which is which.
- Both prices marked on the vertical axis and both quantities on the horizontal, each with a dotted line running to the axis.
- The two points named, A and B, so your writing can refer to them.
- The PES worked out beside the diagram when a number is asked for, with both percentage changes shown.
- One idea per diagram. Comparing elastic and inelastic supply needs two panels, not two curves crossing in a heap.
Figure 9 is the finished thing with each item pointed out.
11Try it
Marks in brackets. Answers and marker's notes are at the end. Do them before you look.
Q1. Define the term price elasticity of supply. 2 marks
Q2. A fishing cooperative sells sardines. When the price rises from €3.00 to €3.60 per kilogram, quantity supplied per week rises from 200 kg to 230 kg. Calculate the PES and comment on your answer. 4 marks
Q3. A furniture maker has a PES of 0.4 for oak tables. The price of oak tables rises by 15%. The workshop was supplying 2,000 tables a year. Calculate the new quantity supplied. 3 marks
Q4. Explain two determinants of the price elasticity of supply of fresh strawberries. 4 marks
Q5 (HL). Explain why the price elasticity of supply of cocoa beans is likely to be lower than that of chocolate bars. 4 marks
12In one breath
PES is the percentage change in quantity supplied divided by the percentage change in price, quantity on top, and it is positive because supply slopes upward. Zero is a vertical curve, infinity a horizontal one; between 0 and 1 supply is inelastic, above 1 elastic, and any straight line through the origin is exactly 1 however steep it looks. Five things decide it: time, mobility of the factors of production, spare capacity, the ability to store, and how fast costs rise as output expands. Given long enough, supply in almost any market becomes elastic. HL: primary commodities score badly on all five, which is why their prices swing when demand moves and manufactured prices do not.
Answers
Q1. Price elasticity of supply is a measure of the responsiveness of the quantity supplied of a good to a change in its own price, calculated as the percentage change in quantity supplied divided by the percentage change in price. one mark for "responsiveness of quantity supplied to a change in price", one for the formula or for "percentage change ÷ percentage change". "How much supply changes" on its own scores 0, because it drops both the percentages and the word price.
Q2. Percentage change in price = (3.60 − 3.00) ÷ 3.00 × 100 = +20%. Percentage change in quantity supplied = (230 − 200) ÷ 200 × 100 = +15%. PES = 15 ÷ 20 = 0.75. Supply is relatively price inelastic: quantity supplied changes by a smaller percentage than price, as you would expect of a fishery that cannot raise its catch quickly in the short run. 1 for each percentage change correctly calculated, 1 for the answer 0.75, 1 for identifying it as inelastic and saying what that means. A bare "0.75" with no comment is capped at 3; a negative answer loses the final mark.
Q3. Percentage change in quantity supplied = PES × percentage change in price = 0.4 × 15 = +6%. New quantity supplied = 2,000 × 1.06 = 2,120 tables a year. 1 for rearranging to PES × %ΔP, 1 for +6%, 1 for 2,120. An answer of 2,120 with no working scores 1; an answer that applies the 15% to the quantity, giving 2,300, scores 0.
Q4. Time: strawberries need a growing season, so in the short run a grower who sees the price rise cannot produce more fruit and supply is highly inelastic; over a year the grower can plant a larger area and supply becomes more elastic. Ability to store: strawberries are perishable and cannot be held in stock, so the grower has nothing in reserve to release when the price rises, which keeps supply inelastic. 1 for naming each determinant, 1 for applying each to strawberries with a reason. Naming five determinants without explaining any is capped at 2. Credit is also available for mobility of factors, spare capacity or the rate at which costs increase, applied properly.
Q5 (HL). Cocoa is a primary commodity. Cocoa trees take several years to reach full yield, so a higher price cannot bring more beans to market this season, and the land planted with cocoa is a specific, immobile factor that cannot easily be expanded or switched. Chocolate bars are manufactured: a factory can add a shift, hire workers and buy in more inputs within weeks, and it may hold stocks to release at once. Because the factory can respond and the plantation cannot, the percentage change in quantity supplied for a given price rise is much larger for chocolate, so its PES is higher. 1 for identifying cocoa as a primary commodity and chocolate as manufactured, 2 for two developed reasons drawn from the determinants (production period, immobility of factors, spare capacity, storage, rate at which costs rise), 1 for the comparative conclusion in PES terms. An answer that lists differences without ever mentioning quantity supplied or PES is capped at 2.
Educerie · written from the published IB Diploma Programme Economics guide, first assessment 2022, section 2.6 Elasticity of supply. Original text, examples and questions. Diagrams drawn by Educerie. Last reviewed 10 September 2026.