AS economics revision – elasticity of supply

This topic can be part of an essay question in Section B of Paper 2 at AS level – the focus is usually on the usefulness of PES. It refers to the ability of producers to adjust supply to a change in PRICE, and is thus basically a SHORT-TERM idea. The elasticity will affect the ways in which price and output will change in a market. And elasticity is also significant in determining some of the effects of changes in government policy when the state chooses to intervene in the price mechanism.

Usefulness of PES

• Production planning: Firms can gauge whether they can expand output easily when prices rise. If PES is high (elastic supply), they can respond quickly and benefit from higher prices.

• Investment decisions: Understanding supply elasticity helps firms decide whether to invest in capacity, storage, or technology to increase responsiveness.

• Pricing strategy: If supply is inelastic in the short run, businesses may set higher prices, knowing competitors can’t easily flood the market.

Below is a mindmap that summarises the topic – adapted from ‘A Level Economics Revision’ by Susan Grant.