Price elasticity of supply
| English | 中文 | Pinyin |
|---|---|---|
| price elasticity of supply/praɪs ɪlæˈstɪsɪti ɒv səˈplaɪ/ | 供给价格弹性 | gōng jǐ jià gé tán xìng |
| spare capacity/speə kəˈpæsɪti/ | 闲置产能 | xián zhì chǎn néng |
A decision you can investigate
- A printer can make extra notebooks next week using spare machines. A farmer cannot harvest another crop next week.
- The same price rise need not create the same output response.
Build the explanation
- Price elasticity of supply 供给价格弹性 (PES) compares the percentage change in quantity supplied with the percentage change in price. PES above 1 is elastic; between 0 and 1 is inelastic; 1 is unitary; 0 is perfectly inelastic (vertical in the model). Perfectly elastic supply is horizontal at one price in the model.
- Stocks, spare capacity 闲置产能, available factors and time affect responsiveness. Manufacturing can often expand quickly with spare capacity; primary output may depend on seasons, weather and biological growth.
Work through the evidence
- Price rises from 10 to 12 yuan. A printer increases output from 100 to 150 units; a grower increases supply from 100 to 110 units.
- Percentage price change = (12−10)/10 × 100 = 20%. Printer quantity change = 50%; PES = 50/20 = 2.5. Grower quantity change = 10%; PES = 10/20 = 0.5.
What is the grower’s PES?
Quantity rises 10% and price 20%: PES = 0.5.
Which situation can make supply less responsive immediately?
A long production period limits an immediate quantity response.
Stored stocks can let sellers increase quantity supplied before new production is completed.
Existing stocks can support a short-run response; replenishment still depends on production constraints.
Test the limits
- Use the stated initial-value convention and compare percentages, not raw units. A gain of 50 units alone does not determine elasticity.
- A crop with stored stocks may respond faster than a factory already at capacity. Do not classify all manufactured or primary products alike.
If price rises 5% and supply rises 5%, PES is
PES uses the ratio 5/5 = 1.
Apply and explain your answer
- Why might the printer have higher PES in this example?
- Spare capacity lets it increase output relatively quickly, while the grower faces a short-run production constraint.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
Use the terms precisely
- price elasticity of supply: Percentage quantity-supplied change divided by percentage price change.
- spare capacity: Productive resources available to increase output without first expanding capacity.
Price rises from 10 to 12 yuan. A printer increases output from 100 to 150 units; a grower increases supply from 100 to 110 units. Percentage price change = (12−10)/10 × 100 = 20%. Printer quantity change = 50%; PES = 50/20 = 2.5. Grower quantity change = 10%; PES = 10/20 = 0.5.
Use the stated initial-value convention and compare percentages, not raw units. A gain of 50 units alone does not determine elasticity. A crop with stored stocks may respond faster than a factory already at capacity. Do not classify all manufactured or primary products alike.
Price elasticity of supply (PES) compares the percentage change in quantity supplied with the percentage change in price. PES above 1 is elastic; between 0 and 1 is inelastic; 1 is unitary; 0 is perfectly inelastic (vertical in the model). Perfectly elastic supply is horizontal at one price in the model.