Calculating PES, what elastic and inelastic supply look like, the straight-line rule, and why supply is more elastic in the long run. Through olive oil.
Two years of severe drought in Spain, the world’s biggest producer, roughly halved its olive harvest in 2022 and 2023. Olive oil prices hit record highs in early 2024. Farmers could not respond quickly: an olive tree takes years to reach full production, and there were few stocks left to sell. Only when new harvests recovered did prices fall back, during 2025.
How quickly can producers respond to a higher price? That is price elasticity of supply.
Price elasticity of supply (PES) measures how responsive quantity supplied is to a change in the good’s price.
PES = % change in quantity supplied ÷ % change in price
Supply slopes up, so price and quantity supplied move the same way: PES is positive. Greater than 1 is elastic, between 0 and 1 is inelastic, exactly 1 is unitary, 0 is perfectly inelastic and infinity is perfectly elastic. As always, only the price changes (ceteris paribus).
The price of olive oil doubles.
New olive trees take years to produce a full crop.
How much more olive oil can farmers supply next month?
In the short run, farmers can only sell what their existing trees produce, plus any stocks. So quantity supplied barely responds to price: supply is price inelastic. Over many years, new trees can be planted and supply becomes more elastic.
Two supply curves through the same point. The flatter one is elastic: a small price rise brings a big rise in quantity supplied. The steeper one is inelastic: even a big price rise brings little extra supply.
Check: The price of copper rises by 20% and the quantity supplied rises by 5%. What is the PES?
5 ÷ 20 = 0.25: positive and less than 1, so inelastic. Mines cannot expand quickly.
A neat rule for straight-line supply curves. Any straight line through the origin has PES = 1, whatever its slope. A line that starts on the price axis is elastic. A line that starts on the quantity axis is inelastic.
The extremes. Vertical: perfectly inelastic, PES = 0. The quantity is fixed whatever the price, like seats in a stadium on match day. Horizontal: perfectly elastic: firms will supply any amount at that price, but none below it.
For olive oil, every factor pointed to inelastic supply in the short run: no spare trees, few stocks and years to grow new ones. Over a decade, new groves can be planted, so long-run supply is much more elastic.
Check: Why is the supply of copper more elastic over ten years than over one year?
It takes years to find, approve and open a new mine. Over ten years producers can add capacity.
Why it matters: when demand rises, inelastic supply means the price rises a lot and quantity a little, as with olive oil. Elastic supply means quantity rises and the price barely moves.
The line starts at the origin, so its PES is exactly 1 all the way along, however steep it is. Steepness alone does not tell you PES: where the line starts does.
Explain why the supply of olive oil is likely to be more price elastic in the long run than in the short run.
Price elasticity of supply measures how responsive the quantity supplied is to a change in price: the percentage change in quantity supplied divided by the percentage change in price.
In the short run, olive oil producers are limited by the trees they already have. A higher price cannot make existing trees produce much more, there is little spare capacity and if stocks have been run down by drought there is little to release. So quantity supplied rises proportionately less than the price: supply is price inelastic.
In the long run, farmers can plant new olive groves, other farmers can switch land into olives and producers in other countries can expand. Because an olive tree takes years to reach full production, this takes time, but once it happens the same percentage rise in price brings a much larger rise in quantity supplied. Long-run supply is therefore more elastic (more elastic than before, which is not the same as saying PES is above 1).
Olive oil: widely reported, 2023 and 2024. Diagrams drawn with Rough.js and perfect-freehand, both MIT licensed. Your answers are saved only on this device.