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Home Elasticity of Supply Price Elasticity of Supply

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 Quantity Supplied

        Percentage Change in Price

 

It can also be written as:

 

Es = ΔQ/Q

                                                                                 ΔP/P

 

Es = ΔQ x P

                                                                                ΔP    Q

 

Just like demand, supply can also be elastic or inelastic.

 

Elastic Supply:

 

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.

 

Inelastic Supply:

 

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".

Relevant Articles:

Price Elasticity of Supply
Categories of Price Elasticity of Supply
Determinants of Price Elasticity of Supply
Measurement of Elasticity of Supply
 

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Rent
Wages
Interest
Profits
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance
History of Money

 

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