2.6Elasticity of supply
Calculate and interpret PES, work backwards from it, draw each degree of PES, and explain what determines how far supply responds to price in the short run and the long run.
Level and scope checked against the Economics guide (course first assessed 2022; October 2022 update), pp. 20–21, 28, on 10 Nov 2026. AI-assisted check, not reviewed by a teacher.
1Learning objectives and review status
- Define price elasticity of supply (PES) and calculate it from data.
- Use a given PES to find a change in price or in quantity supplied.
- Classify supply across the range of PES values and draw each case, including unit-elastic supply.
- Explain how time, factor mobility, unused capacity, storage and the rate at which costs rise determine PES.
- Explain why supply is less elastic in the short run than in the long run, and what this means for prices after a change in demand.
HL extension
2HL learning objectives
- explain why PES is generally lower for primary commodities than for manufactured products.
3Price elasticity of supply
The law of supply says that quantity supplied rises when price rises, ceteris paribus. measures by how much: it is the responsiveness of the quantity supplied of a good to a change in its own price, along a given supply curve.
- Formula: PES = % change in quantity supplied ÷ % change in price.
- Percentage change: (new value − old value) ÷ old value × 100, with the old value as the base.
Price and quantity supplied move in the same direction, so PES is positive for an upward-sloping supply curve. Like every elasticity it is a number with no units and no % sign: a PES of 1.2 means that a 1% rise in price leads to a 1.2% rise in quantity supplied. PES describes a movement along a supply curve, an extension or a contraction of supply. It holds only for the period over which it was measured, because firms can respond more the longer they have.
The formula can be rearranged to find a change when PES is known. Price and quantity supplied move together, so the two percentage changes always have the same sign.
- % change in quantity supplied = PES × % change in price.
- % change in price = % change in quantity supplied ÷ PES.
- New value = old value × (1 + % change ÷ 100).
Check your understanding
Key terms
- Price elasticity of supply (PES)
- The percentage change in quantity supplied divided by the percentage change in the good's price.
4Degrees of PES and their diagrams
PES can take any value from zero to infinity. As with demand there are five cases, and the two extremes are limits that real markets only approach.
- Perfectly inelastic supply: PES = 0; the quantity supplied is fixed whatever the price. A vertical supply curve. The seats in a stadium on the day of a match, and a crop in the days after it has been harvested, come close.
- Relatively (price) inelastic supply: PES is between 0 and 1; quantity supplied changes by a smaller percentage than price.
- Unit elastic supply: PES = 1; quantity supplied and price change by the same percentage. Any straight-line supply curve that starts at the origin has a PES of 1 at every point, however steep it is.
- Relatively (price) elastic supply: PES is greater than 1; quantity supplied changes by a larger percentage than price.
- Perfectly elastic supply: PES is infinite; producers will supply any quantity at the going price and nothing at any lower price. A horizontal supply curve.
For a straight-line supply curve, the place where the line would meet the axes shows its elasticity. A line that starts on the price axis is elastic along its whole length, a line that starts on the quantity axis is inelastic along its whole length, and a line through the origin is unit elastic. Steepness alone is not a test, because it changes with the scales of the axes: a steep line through the origin still has a PES of 1.
Check your understanding
Check your understanding
Key terms
- Price elastic
- A responsiveness greater than one in absolute value: quantity changes by a larger percentage than price.
- Price inelastic
- A responsiveness between zero and one in absolute value: quantity changes by a smaller percentage than price.
- Unit elasticity
- A responsiveness equal to one in absolute value: quantity and price change by the same percentage.
- Perfectly inelastic
- Zero responsiveness represented by a vertical demand or supply curve.
- Perfectly elastic
- Infinite responsiveness, shown by a horizontal curve: buyers purchase nothing at any higher price (demand), or sellers offer nothing at any lower price (supply).
5Determinants of PES
PES depends on how easily and how quickly firms can change their output when the price changes. Five determinants decide this.
- Time: the longer firms have to respond, the more elastic supply is. Immediately after a price rise, output is whatever has already been produced, so supply is close to perfectly inelastic. In the short run firms can add labour and materials, but at least one factor of production, usually capital, is fixed, so output can rise only so far. In the long run every factor can be varied: firms build new plants and new firms enter, so the same price rise brings a much larger increase in quantity supplied.
- Mobility of factors of production: supply is elastic when labour and capital can move easily into making the good from other uses (high ). A clothing factory can switch its machines and workers from shirts to jackets within days. Supply is inelastic where factors are specialised or slow to move: an engineer takes years to train, and land suited to growing grapes cannot be created.
- Unused capacity: a firm with idle machines, empty factory space or workers on short hours has . It can raise output quickly and at little extra cost, so supply is elastic. A firm already working at full capacity can raise output only by investing in new capacity, which takes time, so supply is inelastic.
- Ability to store: if the good can be stored, firms hold stocks () and release them when the price rises, so supply to the market is elastic even when production cannot change. Canned food, grain and most manufactured goods store well. Perishable goods such as fresh fish and cut flowers, and services such as haircuts, cannot be stored, so their supply is less elastic.
- Rate at which costs increase: if producing extra units raises costs only slowly, a small rise in price is enough to make extra output profitable, so supply is elastic. If costs rise steeply as output expands, for example because overtime rates must be paid or scarce materials are bid up, a large rise in price is needed to bring a little more output, so supply is inelastic.
The determinants work together, and the weakest link sets the limit. A factory with idle machines still has inelastic supply if the skilled workers needed to run them cannot be found. A farmer with grain in store can respond at once to a higher price, but a new orchard takes years to bear fruit.
Check your understanding
Key terms
- Spare capacity
- Unused production capability that allows firms to increase output relatively quickly when demand or price rises.
- Stock holding
- The ability to store finished goods or inputs in order to respond to future price or demand changes.
- Factor mobility
- The ease with which land, labour, capital or enterprise can move between alternative uses.
6Short run, long run and the size of price changes
PES decides how a change in demand is divided between a change in price and a change in quantity. When demand increases and supply is inelastic, firms cannot produce much more, so the shortage at the old price is removed mainly by a higher price: the price rises a lot and the quantity a little. When supply is elastic, firms respond with more output, so the quantity rises a lot and the price a little.
Because supply becomes more elastic with time, the same increase in demand has different effects in the short run and in the long run. At first the price jumps, because capacity is fixed. The higher price is both a signal and an incentive: existing firms invest and new firms enter. As capacity grows, quantity supplied rises further and the price falls back part of the way. The first rise in price therefore overstates the lasting one.
The same reasoning applies to a fall in demand. If output cannot be cut quickly and unsold goods cannot be stored, supply is very inelastic, and the price must fall a long way before the market clears.
Check your understanding
HL extension
7HL: PES of primary commodities and manufactured products
A is a product of agriculture, fishing, forestry or mining, sold with little or no processing. A is made from raw materials in a factory. The PES for primary commodities is generally lower than the PES for manufactured products. Each reason is one of the determinants of PES applied to the way the two kinds of good are produced.
- Time: agricultural output follows a biological cycle. Once a crop is planted, the size of the harvest is largely fixed for the season, and tree crops such as coffee, cocoa and rubber take several years from planting to the first harvest. A new mine or oil field takes years to survey, finance and build. A factory can usually raise its output within weeks by adding shifts.
- Mobility of factors: the land, climate and mineral deposits that primary production needs cannot be moved or created, and land under one crop can be switched to another only at the next planting. Factory buildings, general-purpose machines and workers can be switched between products far more easily.
- Unused capacity: farms and mines normally work the land and equipment they have at close to full capacity. Manufacturers often have spare capacity, which they can bring into use when the price rises.
- Ability to store: many agricultural products are perishable or costly to store, so the stocks that could be released when the price rises are small. Manufactured products are usually durable and are held in stock by producers and retailers.
- Rate at which costs increase: expanding primary output means using poorer land or deeper, lower-grade deposits, so the cost of each extra unit rises steeply. In a factory, extra units can often be produced at a similar cost per unit until capacity is reached.
Low PES, together with the low PED explained in the lesson on elasticity of demand, is the reason the prices of primary commodities fluctuate more than the prices of manufactured products. Both curves are steep. When supply shifts, for example after a poor harvest, quantity demanded hardly responds to the higher price and other producers cannot fill the gap, so the price must rise a long way to clear the market. When demand shifts, supply cannot respond, so again the price does the adjusting. In the market for a manufactured product the same shift is absorbed mostly by a change in quantity.
The pattern has exceptions, and they follow the same determinants. Commodities that store well and are held in large stocks, such as grain or metals in warehouses, have more elastic supply for as long as the stocks last. Over several years the supply of most commodities becomes elastic, as new land is planted and new mines open. And a manufactured product that needs highly specialised plant already working at full capacity, such as advanced computer chips, can have very inelastic supply in the short run.
Check your understanding
Key terms
- Primary commodityHL
- An agricultural or raw material product, often subject to long production cycles and limited short-run supply flexibility.
- Manufactured productHL
- A transformed good produced through industrial processes, often with greater ability to vary output in the short run.
- Price elasticity of supply (PES)
- The percentage change in quantity supplied divided by the percentage change in the good's price.
8Revision summary and common mistakes
- PES = % change in quantity supplied ÷ % change in price. It is positive and has no units.
- A PES below 1 is price inelastic, 1 is unit elastic and above 1 is price elastic. A vertical supply curve is perfectly inelastic; a horizontal one is perfectly elastic, with nothing supplied below the going price.
- A straight-line supply curve from the origin is unit elastic; one that starts on the price axis is elastic; one that starts on the quantity axis is inelastic.
- Supply is more elastic with more time, mobile factors of production, unused capacity, output that can be stored and costs that rise slowly.
- After an increase in demand, the price rises more and the quantity less the more inelastic supply is. Over time supply becomes more elastic and part of the price rise is reversed.
- To work backwards: % change in quantity supplied = PES × % change in price, and % change in price = % change in quantity supplied ÷ PES.
9Practice and feedback: 2 marks
10Practice and feedback: 2 marks
11Practice and feedback: 4 marks
12Practice and feedback: 4 marks
13Practice and feedback: 10 marks
HL extension
14Practice and feedback: 10 marks
15Sources and review status
Written with AI assistance. The sources below were consulted on ; each entry says what it was used for and what it does not cover. Not reviewed by a teacher. Not approved as a finished revision resource.
Not yet checked against any source: determinants of price elasticity of supply other than time (factor mobility, unused capacity, ability to store, rate at which costs increase); HL: why supply of primary commodities is less price elastic than supply of manufactured products.
Sources consulted
Diploma Programme Economics guide (course first assessed 2022; October 2022 update; cover reads "First assessment 2024")
International Baccalaureate. IB curriculum document, learner's own copy, 10 Nov 2026. Printed pp. 20-21 (syllabus outline) and the topic tables on the printed pages recorded on each syllabus node; assessment outline pp. 60-65; command terms pp. 74-75. PDF page = printed page + 6.
Used for: Topic titles, the scope of each topic and SL/HL level, the assessment format and the command terms, as recorded on each syllabus node.
Limits: Read from the learner's own PDF, which is not redistributed. The IB's online copy could not be opened by automated access (HTTP 403 on 11 November 2026), so this copy was not compared with it. It sets what must be taught; it does not explain the economics. AI-assisted reading, not checked by a teacher.
Principles of Microeconomics 3e: 5.1 Price Elasticity of Demand and Price Elasticity of Supply
OpenStax, Rice University. Reference, read in full, 11 Nov 2026. 5.1, including elasticity, percentage change and the midpoint alternative
Used for: Independent textbook cross-check of elasticity as a ratio of percentage changes and the difference between slope and elasticity.
Limits: Uses the midpoint method; IB Vault uses initial values and says so. Does not list the determinants of PED or of PES and does not discuss total revenue. University-level US textbook; not an authority for IB scope or level.
Principles of Microeconomics 3e: 5.2 Polar Cases of Elasticity and Constant Elasticity
OpenStax, Rice University. Reference, read in full, 11 Nov 2026. Section 5.2
Used for: Perfectly elastic demand and supply are horizontal; perfectly inelastic are vertical; a constant unit-elastic demand curve is curved and a unit-elastic supply curve is a straight line from the origin.
Limits: Diagram description only; no IB-style calculation. University-level US textbook: its wording, examples and diagrams are not IB wording and it is not an authority for IB scope or SL/HL level.
Principles of Microeconomics 3e: 5.3 Elasticity and Pricing
OpenStax, Rice University. Reference, read in full, 11 Nov 2026. 5.3, including total revenue, cost pass-through and tax incidence
Used for: Elasticity and total revenue; passing costs on to consumers; tax incidence by relative elasticity; short-run versus long-run elasticity.
Limits: Does not list the determinants of PED. Uses its own numerical examples. University-level US textbook; not an authority for IB scope or level.
Low liquidity and limited available storage pushed WTI crude oil futures prices below zero
U.S. Energy Information Administration (Today in Energy). Real-world source, read in full, 11 Nov 2026. Today in Energy article, 27 April 2020
Used for: The negative WTI front-month price on 20 April 2020, the refinery-run fall, Cushing storage utilisation and the Brent comparison.
Limits: A futures-contract price at expiry, concentrated in one delivery point; physical prices for most crude stayed positive. The article (27 April 2020) gives the intraday low, not a settlement price.
Beverage prices surge amid supply shortfalls
World Bank (Data Blog). Real-world source, read in full, 11 Nov 2026. Blog post, 11 March 2024, cocoa and coffee paragraphs
Used for: Cocoa price changes in 2023 and February 2024 and the Cote d'Ivoire supply shortfall attributed to El Nino-linked heavy rain.
Limits: A staff blog summarising World Bank commodity price data; it gives percentage changes, not a price level, and does not cover the later 2024 peak.