Price Elasticity of Supply:
Definition and Explanation:
Price elasticity of demand measures the
degree of responsiveness of demand for
a product due to a change in the price of that product.
"Price elasticity of
supply measures how responsive producers are to a change in the price of good.
It is defined as a measure of the responsiveness of quantity supplied to change in price".
Measurement and Formula:
It is measured by dividing the
percentage change in quantity supplied by the percentage change in price. Thus
the Percentage Method formula is:
Es = Percentage Change in
Percentage Change in Price
It can also be written as:
Es = ΔQ/Q
ΔQ x P
Just like demand, supply can also be elastic or
Elasticity of supply represents the extent of change
in supply in response to a change in price. If the amount supplied is highly
responsive to a change in price, the supply is said to be elastic.
If the amount offered for sale is less affected by
price change, then the supply is said to be inelastic.
Relation Between Price and Supply:
The elasticity of supply is great or small
accordingly as the amount offered for sale increases much or little for a given
rise in price. Boulding in his book "Economic Analysis" writes:
"The relation between a price and the quantity of
supply is rather like the relation between a whistle and a dog, the louder
the whistle, the faster comes the dog; raise the price and quantity supplied
increase. If the dog is responsive in Economic terminology; elastic-quite a
small crescendo in the whistle will send him bounding along. If the dog is
unresponsive or inelastic, we may have to whistle very loudly before he comes
along at all".