What Factors Affect Price Elasticity of Supply?

The main factors affecting price elasticity of supply (PES) are how quickly a product can be made, whether firms have spare capacity or stocks, how easily they can obtain and switch resources, and how much time they have to respond to a price change.

Scope: Cambridge International AS Level Economics, Price elasticity of supply, points 2.3.4 (factors affecting PES) and 2.3.5 (the speed and ease of firms’ responses). This is also assumed knowledge at A Level.

Why these factors matter

PES measures how responsive the quantity supplied is to a change in price. Supply is more elastic when firms can increase output quickly and easily.

• Spare capacity: A factory with unused machinery and available workers can raise production more readily than one already operating at full capacity.
• Stocks and storage: A firm holding finished goods can supply more immediately when the price rises. Perishable goods are harder to store for later sale.
• Production time: Crops take time to grow, so farmers cannot rapidly increase the harvest in response to a higher price. A firm making goods quickly may respond sooner.
• Availability and mobility of resources: If workers, materials and machinery are readily available, or can be switched from making another product, output can rise more easily.
• Time period: Supply tends to be less elastic in the short run. Given longer, firms may be able to recruit workers, obtain equipment or expand their facilities.

For example, if a price rises by $10\%$ and a firm can increase quantity supplied by only $5\%$, its PES is $5\%/10\%=0.5$. Supply is inelastic: quantity supplied changes proportionately less than price.

Exam mistake: Do not say a higher price shifts the supply curve. It causes a movement along the curve; these factors explain how much quantity supplied can change as price changes.