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What is the price elasticity of supply?

What is the price elasticity of supply?

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Answer #1

Price elasticity of supply

Price elasticity of supply measures the responsiveness of a change in market price on the change in supply. It is calculated as the ratio of percentage change in quantity supplied and the percentage change in price.

As we know, when price of a good rises, producers will increase its supply and when price of a good decreases, producers will decrease their supply. Thus, price elasticity of supply will always be positive as both supply and price goes in same direction.

It is calculated as;

Es = Percenatge change in Quantity supplied / Percenatge change in price

  

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