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".
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