What is price elasticity of supply (PES)?

PES measures the responsiveness of quantity supplied to a change in price. It is calculated as % change in quantity supplied ÷ % change in price. If PES > 1, supply is elastic (responsive to price changes). If PES < 1, supply is inelastic (unresponsive). Key factors affecting PES include spare capacity, time period, availability of raw materials, and ease of storing stock.

What causes a shift in the supply curve?

Supply shifts right (increases) when production costs fall, technology improves, subsidies are introduced, or new firms enter the market. Supply shifts left (decreases) when costs rise (e.g. raw materials, wages), indirect taxes are imposed, or regulations increase. A change in price causes a movement along the supply curve, not a shift.

Explain what is meant by price elasticity of supply (PES) and identify two factors that affect it.

Price elasticity of supply (PES) measures the responsiveness of quantity supplied to a change in price. K It is calculated as the percentage change in quantity supplied divided by the percentage change in price. If PES > 1, supply is elastic ; if PES inelastic . K One factor affecting PES is the availability of spare capacity . A Firms with excess capacity (e.g. unused machinery or factory space) can increase output quickly in response to a price rise, making supply more elastic. Conversely, a firm operating at full capacity would struggle to expand output in the short term. A A second factor is the time period . A In the short run , supply tends to be inelastic because it takes time to hire additional workers, source raw materials, or build new production facilities. In the long run , firms can adjust all factors of production, making supply more elastic. A

Examine the effects of a fall in the cost of raw materials on a market.

Supply is the quantity of a good or service that producers are willing and able to offer for sale at each price level in a given time period. K A key non-price determinant of supply is the cost of production — when costs fall, supply increases. K A fall in the cost of raw materials — for example, a decline in global oil prices reducing production costs for plastics manufacturers — means that at every given price, firms can produce more profitably. A This causes the supply curve to shift rightward from S₁ to S₂. D At the original price, there is now excess supply , which puts downward pressure on the market price. The market moves to a new equilibrium with a lower price (P₂ and a higher quantity (Q₂ > Q₁) . An Consumers benefit from the lower price and increased availability of the product, experiencing a rise in consumer surplus . An For firms, the impact on revenue depends on the price elasticity of demand (PED) . If demand is price elastic (PED > 1), the increase in quantity demanded will more than offset the price fall, and total revenue will rise . An However, if demand is inelastic, total revenue may fall despite higher sales volumes. Firms' profit margins may still improve because the cost savings from cheaper raw materials may exceed the reduction in selling price, leaving them better off overall. An

WEC11 8-mark examine question: Supply model answers | Edexcel IAL Economics

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Economics · WEC11 · Unit 1 · 1.3.3

Exam questions

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Explain4 marksAO1 · AO25 min
Explain what is meant by price elasticity of supply (PES) and identify two factors that affect it.
Mark scheme
1–2 marks
Definition of PES (responsiveness of quantity supplied to a change in price)
3–4 marks
Two factors identified and briefly developed
Model answer — 4 / 4
What the marks in the margin meanKKnowledge/DefinitionAApplication
Price elasticity of supply (PES) measures the responsiveness of quantity supplied to a change in price. K It is calculated as the percentage change in quantity supplied divided by the percentage change in price. If PES > 1, supply is elastic; if PES < 1, supply is inelastic. K

One factor affecting PES is the availability of spare capacity. A Firms with excess capacity (e.g. unused machinery or factory space) can increase output quickly in response to a price rise, making supply more elastic. Conversely, a firm operating at full capacity would struggle to expand output in the short term. A

A second factor is the time period. A In the short run, supply tends to be inelastic because it takes time to hire additional workers, source raw materials, or build new production facilities. In the long run, firms can adjust all factors of production, making supply more elastic. A
Examiner commentary
Full marks require a clear definition of PES (not just "how supply changes") and two distinct, developed factors. Candidates who simply list factors without explaining how they affect PES will only reach 2–3 marks. The distinction between short run and long run is a reliable factor that examiners accept.
Examine8 marksAO1 · AO2 · AO3 · AO411 min
Examine the effects of a fall in the cost of raw materials on a market.
Mark scheme
Examine (8)
Appendix 6: Requires knowledge, understanding, application, analysis and evaluation. Requires an explanation which includes a chain of reasoning, and diagrams where appropriate. Focuses on depth rather than breadth. Any relevant data provided needs to be interpreted. There should be a brief assessment of the arguments/factors/evidence.
Level 1 — 1–2 marks
Isolated knowledge and understanding. No application to the context and no chain of reasoning.
Level 2 — 3–4 marks
Knowledge applied to the context. A chain of reasoning is begun but not carried through; any data given is described rather than interpreted.
Level 3 — 5–6 marks
A developed chain of reasoning in context, with a diagram where one is appropriate. Depth rather than breadth; data interpreted. Assessment is implied rather than made.
Level 4 — 7–8 marks
A developed chain of reasoning in context AND a brief assessment of the arguments, factors or evidence — the clause that separates Examine from Analyse.
Indicative content
Knowledge: definition of supply and/or factors affecting supply. Application: mechanism explained (lower costs → supply shifts right). Analysis: developed chain — new equilibrium, lower price, higher quantity, impact on firms/consumers.
Model answer — 7–8 / 8
What the marks in the margin meanKKnowledgeAApplicationAnAnalysis chainDDiagram ref.
Para 1
Supply is the quantity of a good or service that producers are willing and able to offer for sale at each price level in a given time period. K A key non-price determinant of supply is the cost of production — when costs fall, supply increases. K
Para 2
A fall in the cost of raw materials — for example, a decline in global oil prices reducing production costs for plastics manufacturers — means that at every given price, firms can produce more profitably. A This causes the supply curve to shift rightward from S₁ to S₂. D At the original price, there is now excess supply, which puts downward pressure on the market price. The market moves to a new equilibrium with a lower price (P₂ < P₁) and a higher quantity (Q₂ > Q₁). An
Para 3
Consumers benefit from the lower price and increased availability of the product, experiencing a rise in consumer surplus. An For firms, the impact on revenue depends on the price elasticity of demand (PED). If demand is price elastic (PED > 1), the increase in quantity demanded will more than offset the price fall, and total revenue will rise. An However, if demand is inelastic, total revenue may fall despite higher sales volumes. Firms' profit margins may still improve because the cost savings from cheaper raw materials may exceed the reduction in selling price, leaving them better off overall. An
Examiner commentary
The chain is developed and in context: raw material costs fall → supply shifts right → price falls and quantity rises → consumer surplus rises. The oil price example supplies the application, and a supply and demand diagram would earn the diagram credit. What takes it into Level 4 is the assessment in paragraph 3: the revenue effect is not asserted but made conditional on PED, the opposite case is stated (inelastic demand, revenue falls), and it is then weighed against the cost saving. That brief assessment is the clause separating Examine from Analyse.
Why this loses marks — a mid-band attempt at the same question
Not a real script, and not written for this panel. It is 2 of 3 paragraphs of the model answer above, with “Para 3” removed. Nothing is rewritten. Open the model answer above and the difference is exactly the paragraphs named here.
What the marks in the margin meanKKnowledgeAApplicationAnAnalysis chainDDiagram ref.
Para 1
Supply is the quantity of a good or service that producers are willing and able to offer for sale at each price level in a given time period. K A key non-price determinant of supply is the cost of production — when costs fall, supply increases. K
Para 2
A fall in the cost of raw materials — for example, a decline in global oil prices reducing production costs for plastics manufacturers — means that at every given price, firms can produce more profitably. A This causes the supply curve to shift rightward from S₁ to S₂. D At the original price, there is now excess supply, which puts downward pressure on the market price. The market moves to a new equilibrium with a lower price (P₂ < P₁) and a higher quantity (Q₂ > Q₁). An
The band this attempt cannot reach
Level 4 — 7–8 marks
A developed chain of reasoning in context AND a brief assessment of the arguments, factors or evidence — the clause that separates Examine from Analyse.
Where it tops out instead
Level 3 — 5–6 marks
A developed chain of reasoning in context, with a diagram where one is appropriate. Depth rather than breadth; data interpreted. Assessment is implied rather than made.
No mark is put on this attempt. The full answer above is marked 7–8 / 8 by its own commentary; what a truncated version scores depends on the script, and inventing a number for it would be the kind of false precision this page exists to avoid.

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Supply — Exam Questions & Model Answers

Exam questions

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Para 3

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The band this attempt cannot reach

Where it tops out instead