Price elasticity of supply
PES – definition
Price elasticity of supply (PES) is the responsiveness of quantity supplied to a change in price. PES is calculated using the following formula:
|% Change in quantity
|% Change in price|
Hence, if the price of a smartphone increases from £400 to £440 (a 10% increase), and supply increases from 2m a year to 2.1m (a 5% rise), PES for smartphones would be:
Which gives a PES value of (+) 0.5. The positive sign shows that price and quantity supplied are positively related, and the value (0.5) is less than 1, which means the PES for smartphones is inelastic.