Price elasticity of supply

Price elasticity of supply (PES) measures the responsiveness of quantity supplied to a change in price. It is necessary for a firm to know how quickly, and effectively, it can respond to changing market conditions, especially to price changes. The following equation can be used to calculate PES.

% change in quantity supplied % change in price

While the coefficient for PES is positive in value, it may range from 0, perfectly inelastic, to infinite, perfectly elastic.

A firm’s market price increases from £1 to £1.10, and its supply increases from 10m to 12.5m. PES is: