Formula For And Calculation Of Price Elasticity Of Supply
Economics notes
Formula For And Calculation Of Price Elasticity Of Supply
➡️ Price elasticity of supply (PES) measures the responsiveness of quantity supplied to a change in price.
➡️ PES is calculated by dividing the percentage change in quantity supplied by the percentage change in price.
➡️ PES can be either elastic, inelastic, or unitary. If PES is greater than 1, it is elastic; if PES is less than 1, it is inelastic; and if PES is equal to 1, it is unitary.
➡️ PES is important for businesses to understand, as it can help them determine how to set prices and how to respond to changes in demand.
➡️ PES can also be used by governments to assess the impact of taxes and subsidies on the supply of goods and services.
What is the formula for calculating price elasticity of supply?
The formula for calculating price elasticity of supply is
Price Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)
How do you interpret the value of price elasticity of supply?
The value of price elasticity of supply indicates the responsiveness of quantity supplied to changes in price. If the value is greater than 1, supply is considered elastic, meaning that a small change in price leads to a relatively larger change in quantity supplied. If the value is less than 1, supply is considered inelastic, meaning that a change in price leads to a relatively smaller change in quantity supplied. If the value is equal to 1, supply is considered unit elastic, meaning that a change in price leads to an equal change in quantity supplied.
How can price elasticity of supply be used in business decision-making?
Price elasticity of supply can be used by businesses to determine how much they should adjust their prices in response to changes in demand. If supply is elastic, businesses can increase their prices without losing too many customers, while if supply is inelastic, businesses may need to be more cautious about raising prices. Additionally, businesses can use price elasticity of supply to determine how much they should produce in response to changes in demand, as a more elastic supply means that they can increase production more easily in response to increased demand.