The Bungee Jump of Supply: Understanding PES (Price Elasticity of Supply)

The Bungee Jump of Supply: Understanding PES (Price Elasticity of Supply)

Ever tried ordering pizza on a rainy Friday night?

You know the drill: surge pricing, late delivery, and a very stressed-out driver. But ever wondered why the supply of pizza can’t just magically double to meet the sudden spike in demand?

Welcome to the unpredictable world of Price Elasticity of Supply (PES) - an economist’s way of asking: “How stretchy is supply when prices change?”

Let’s dive into it like we're analysing the supply chain of festival glitter during Glastonbury week.

What Is PES and Why Should You Care?

Price Elasticity of Supply (PES) tells us how much the quantity supplied of a good or service responds to changes in its price. It’s a percentage formula:

Percentage change in quantity supplied / Percentage change in price

(%∆QS) / (%∆P)

In “average” human language: If the price of something shoots up, how quickly and how much can suppliers respond by increasing the quantity they offer?

If you're new to elasticity, it might be helpful to start with our guide to Price Elasticity of Demand (PED) - the other half of the elasticity duo.

A Quick Note: PES Is Always Positive

That’s because supply and price move in the same direction. Prices go up? Suppliers want in. They’re not mad and will not miss such a kind invitation.

Real-World Examples (Because Textbooks haven’t got the ability to bring things to life)

Elastic Supply: The Case of Fizzy Drinks

Let’s say the price of cola doubles overnight (global sugar crisis, who knows). Coca-Cola doesn’t break a sweat. Their production lines are so automated and scalable that they can ramp up output in a flash.

That’s price elastic supply - easy to expand production = PES > 1.

Inelastic Supply: The Organic Strawberry Struggle

Now imagine the price of organic strawberries doubles. Can a farmer just conjure up more by the weekend? Nope. Crops take time, weather is moody, and land is limited.

This is price inelastic supply - slow to respond = PES < 1.

Want more relatable examples? Check out our post on Income Elasticity of Demand (YED) to see how consumers react to income changes in just as unpredictable a way.

Degrees of PES (Like Coffee Strength, but More Mathematical)

PES = 0: Perfectly inelastic. Supply won’t budge even if the price triples. Think concert hall seating - only so many seats, places are restricted.

PES < 1: Inelastic. Quantity supplied changes a little when price changes.

PES = 1: Unitary elasticity. % change in supply = % change in price.

PES > 1: Elastic. Supply is responsive and stretches well.

PES = ∞: Perfectly elastic. Quantity can increase infinitely without any price change. Hello, Duracell warehouses packed with batteries.

What Affects PES? (Why Can’t Everyone Be Like Amazon?)

1. Time

Short run = tough luck. Car companies can’t magically assemble SUVs overnight.

Long run = more flexible. New factories, more robots, happier economists.

2. Mobility of Factors

Can you easily move production to another place?

Call centres can. That’s why some vanished to the Philippines overnight. Flexible factors = elastic supply.

3. Cost Increases

If expanding output is cheap, supply is more elastic. If each extra unit costs a fortune, not so much.

4. Spare Capacity

Electricity providers with unused capacity can flick a switch and supply more. No spare capacity? Good luck keeping the lights on.

5. Ability to Store

Zara can pull stock from warehouses the moment prices rise. Farmers, not so much. Spoiled lettuce is not exactly what the average consumer wants.

6. Flexibility in Production

Software is king here. Once it’s built, selling 1 or 10,000 copies is just a click away. Marginal cost? Basically zero. PES = very high.

How Can Firms Improve Their PES?

Let’s say you’re running a candle company during a blackout season. Here’s how to become more elastic:

• Build spare capacity (bigger factory, more machines)

• Keep stockpiles (wax mountain, anyone?)

• Store smartly (temperature-controlled warehouses)

• Embrace tech (automation never sleeps)

• Train staff (a worker who can switch between roles is gold)

HL Content: Primary Commodities vs Manufactured Products

Primary Products (Oil, Coal, Coffee Beans)

These guys are slow. Digging, drilling, growing - it all takes time. So, PES is typically low.

Manufactured Goods (Trainers, Smartphones, Lipstick)

Mass-produced in factories with machines humming 24/7. Fast to respond = high PES.

Capital-intensive industries win here. Robots don’t need holidays.

Want to deepen your HL understanding? See our post on Rational Consumer Choice and Behavioural Economics for insights into the demand side of the story.

Final Thought

When prices go up, some industries leap into action like a cat hearing a tin opener. Others lumber along like a sleepy tortoise. The difference is PES - and if you get it, you’re already ahead of the IB curve.

So next time you’re stuck waiting for a pizza in a thunderstorm, remember it's not you - it's price inelastic supply.