Elasticity of supply: notes and practice questions
- This topic covers the concept, calculation, and determinants of price elasticity of supply (PES).
- PES measures the responsiveness of quantity supplied to a change in price.
- The formula for PES is .
- Determinants of PES include time, mobility of factors of production, unused capacity, ability to store, and the rate at which costs increase.
- PES can be perfectly elastic, perfectly inelastic, unitary elastic, relatively elastic, or relatively inelastic.
- Diagrams are used to illustrate different degrees of PES.
- Calculations of PES from provided data are a key skill.
How it is examined
May 2025 Paper 2 TZ1 Q1(b)(i) asked for a PES calculation from a table for 2 marks, requiring valid working. The diagram rows show up as short Paper 2 sketches. Because 2.6 has no AO3 row, it never carries a 15-mark part on its own.
PES = percentage change in quantity supplied / percentage change in price
- Price elasticity of supply, defined as the percentage change in quantity supplied divided by the percentage change in price. (AO2, AO4)
- The degrees of PES, meaning the theoretical range of values. (AO2, AO4)
- The determinants of PES: time, mobility of factors of production, unused capacity, ability to store, and the rate at which costs increase. (AO2, AO4)
Reasons why PES for primary commodities is generally lower than PES for manufactured products. (AO2)
Guiding questions
- How responsive is supply, and why does it differ between goods?
Linking questions
- Mirrors 2.5. The two are often examined together in a compare or distinguish.
- Low PES for primary commodities (HL) plus low PED for the same goods is the standard explanation of commodity price volatility, used in 4.9 and 4.10.
- PES determines who bears an indirect tax in 2.7.
Practice questions
1 question · 1 hardQuestion 1
HardPaper 1 · no calculator25 marks(a) Explain why the price elasticity of supply for many primary commodities is relatively low, while for many manufactured goods it is relatively high.
(b) Using real-world examples, evaluate the view that market-based policies are the most effective way to deal with the negative externalities of production.
Start by defining price elasticity of supply (PES). Then, consider the key determinants of PES, such as the time period, ability to store stock, and spare capacity. Apply these determinants to both primary commodities (like agricultural products or minerals) and manufactured goods (like cars or smartphones) to build your explanation.
Start by explaining what a negative externality of production is, using a diagram. Then, describe market-based policies like carbon taxes and tradable permit schemes. To evaluate, you must compare these policies with an alternative, such as command-and-control regulation. Consider the pros and cons of each approach in terms of efficiency, effectiveness, and equity. Use real-world examples to support your arguments.
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Where marks are lost
- No real-world example, or a stated one. An answer that names a country and stops cannot reach the top two bands.
- One-sided argument. Balance is an explicit axis. A student who argues only that a policy works is capped at 9 out of 15 on that axis alone.
- Diagram present but not explained. The diagram bullet escalates across three bands: included, included and explained, included and fully explained. A diagram dropped into an answer without prose that refers to it sits at 5 to 6 on a 10-mark part.
