Syllabus: AQA - AS and A Level Economics
Module: 3.1.2 Price Determination in a Competitive market
Lesson: 3.1.2.4 Price elasticity of supply

Introduction

This article supports delivery of AQA AS and A Level Economics, specifically 3.1.2.4 – Price Elasticity of Supply (PES), within the broader theme of Price Determination in a Competitive Market.

Price elasticity of supply is a core microeconomic concept. It helps students understand how firms react to changes in market conditions – a vital link to decision-making, resource allocation and long-run planning. This topic is not only examinable in its own right but also underpins more complex analyses in production, costs and market dynamics.

The good news? It’s a topic that naturally lends itself to real-world examples and can be taught using active, practical methods that bring supply-side theory to life.

Key Concepts

According to the AQA specification, students must be able to:

• Define price elasticity of supply: the responsiveness of quantity supplied to a change in price.

• Calculate PES using the formula:

  PES=%change in quantity supplied%change in price\text{PES} = \frac{\% \text{change in quantity supplied}}{\% \text{change in price}}PES=%change in price%change in quantity supplied​

• Interpret PES values:

  • PES > 1: relatively elastic

  • PES < 1: relatively inelastic

  • PES = 0: perfectly inelastic

  • PES = ∞: perfectly elastic

  • PES = 1: unitary elasticity

• Understand the key determinants of PES:

  • Spare production capacity

  • Stock levels

  • Time period (short vs long run)

  • Flexibility of production processes

  • Mobility of factors of production

This topic builds strong quantitative and analytical skills, laying the foundation for later study of firm behaviour and market structures.

Real-World Relevance

PES becomes particularly tangible when students look at supply shocks or production bottlenecks.

Case example 1: Microchips and supply inelasticity
During the global chip shortage (2021–2022), car and electronics manufacturers couldn’t ramp up production despite rising prices. The highly inelastic supply reflected long production lead times, limited spare capacity and capital-intensive infrastructure.

Case example 2: Agricultural markets
Many food items—like wheat or coffee—have inelastic supply in the short run. Even if prices spike due to demand or geopolitical events, farmers can’t instantly increase supply due to planting cycles and weather dependencies.

These real-world examples help students move beyond abstract graphs and begin thinking like economists.

How It’s Assessed

AQA uses a mix of quantitative and applied questions, often within larger contexts. Students can expect:

• Short calculation tasks: Using the PES formula with supplied data

• Interpretation questions: Explaining what a PES value implies for supply behaviour

• Application questions: Linking PES to real-world scenarios, like tax impacts or price volatility

• Extended writing: Discussing the implications of inelastic supply on market stability or firm decisions

Command words include: calculate, explain, analyse, discuss, and evaluate. Students must support their answers with diagrams and logical reasoning – not just definitions.

Enterprise Skills Integration

This topic links naturally to enterprise thinking. In our Business Simulations, students face decisions on pricing and output while managing stock levels and reacting to market changes – exactly the sort of elasticity trade-offs that PES models.

Skills developed include:

• Problem-solving: How should a firm respond to sudden changes in demand?

• Decision-making under pressure: When to invest in capacity or hold back

• Data interpretation: Understanding elasticity metrics to forecast risk

Using Enterprise Skills simulations during or after teaching PES helps students do the economics, not just learn it.

Careers Links

Understanding PES connects directly to career skills valued in:

• Supply chain management

• Logistics and operations

• Retail strategy and pricing

• Policy and planning roles in government or NGOs

This aligns to Gatsby Benchmark 4 (Linking curriculum learning to careers) and Benchmark 5 (Encounters with employers).

A practical classroom extension might include analysing how a local business adapted its supply model post-COVID or during seasonal demand shifts – reinforcing career awareness alongside curriculum.

Teaching Notes

Common pitfalls:

• Confusing PES with PED (Price Elasticity of Demand)

• Misinterpreting elasticity values (e.g. thinking elastic supply means prices are flexible)

• Forgetting the time factor – students often ignore the long-run/short-run distinction

Time-saving tips:

• Use a supply elasticity spectrum starter to help students categorise products (e.g. match items to elasticities)

• Run a “factory simulation” where groups act as producers responding to price shocks with varying constraints (stock, time, labour)

• Scaffold calculations by teaching percentage change methods clearly before introducing PES

Extension activities:

• Compare PES in different industries (e.g. tech vs agriculture)

• Ask students to explore supply elasticity in the gig economy (Uber, Deliveroo)

Use Skills Hub tools to drop in ready-made elasticity exercises, saving planning time and reinforcing exam-style application.