Question

4) In no more than five (5) lines of typed text below this question define the term price elasticity of supply and be sure to include a numerical analysis in your answer. Provide examples as wel

Answer 1

Price elasticity of supply measures the change in quantity supplied caused by a change in price.

It can be measured as,

E_S = (% change in quantity supplied / % change in price).

When the value of E_S > 1, it is elastic. That means, a change in price causes higher change in quantity supplied. That means if price changes by 5%, quantity supplied changes more than 5%.

When the value of E_S < 1, it is inelastic. That means a change in price causes lesser change in quantity supplied. Here, if price changes by 5%, quantity supplied by less than 5%.