This measures the responsiveness of supply to changes in price
% change in quantity supplied / % change in price
If PES > 1 it is elastic – this means it is easy for suppliers to respond quickly to price changes
If PES < 1 it is inelastic – this means it is hard for suppliers to respond quickly to changes in price
Factors Influencing Price Elasticity of Supply
Spare capacity – if there is lots of spare capacity the business should be able to increase output quite quickly therefore supply will be elastic
Ease of factor substitution -If capital and labour resources can easily be switched then the production process is more flexible and elasticity of supply for a product is likely to be higher
Stocks – If stock levels are high then supply will be elastic
Time period – the longer the time period the more likely supply is likely to elastic as the firm has time to alter production levels
