Price Elasticity of Supply
A measure of how responsive the quantity supplied of a good is to a change in its price.
What is Supply Elasticity?
Price elasticity of supply (PES) measures the percentage change in quantity supplied divided by the percentage change in price, quantifying how easily and quickly producers can adjust output in response to price signals. If PES > 1, supply is elastic — producers can readily scale output (e.g., manufactured goods with spare capacity). If PES < 1, supply is inelastic — output cannot change quickly regardless of price (e.g., agricultural crops limited by growing seasons, or beachfront real estate limited by geography). Elastic supply means price changes are dampened as producers respond; inelastic supply means price changes are amplified because quantity cannot adjust. Key determinants of supply elasticity include the time horizon (supply is more elastic over longer periods), production flexibility, availability of inputs, and barriers to entry.
Example
When the price of face masks surged in early 2020 due to COVID-19 demand, manufacturers rapidly ramped up production from millions to billions per month within weeks — highly elastic supply. By contrast, when California wine prices rise due to a drought, supply remains inelastic for years because new vineyards take 3–5 years to produce a first crop, so higher prices cannot quickly bring more bottles to market.