Price Elasticity of Supply Formulae
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Price Elasticity of Supply Formulae
A definition and the formula
Again, the key word is responsiveness, but this time we need to find out how responsive supply is to a given price change (rather than demand). Unsurprisingly, the formula used is very similar to the others in structure:
Where: | E_{s} = The price elasticity of supply |
Δ = 'change in' | |
Q_{s} = Quantity supplied | |
P = Price |
Using the formula
I do not want to dwell on this for two reasons. First, there are far fewer questions in examinations focused on the price elasticity of supply. Examiners prefer demand, where one can analyse the affects on the revenues on the firm in question (see the Learn-It on the 'Price elasticity of demand'). Secondly, the way in which one uses this formula is exactly the same as the way in which one uses the formula for the price elasticity of demand. Try the following examples to check that you agree with me. Click on the appropriate button to reveal the answers.
The market price for apples rises from 50p per lb to 55p per lb. A greengrocer would like to increase his supply of apples at this higher price from 40lbs a day to 50lbs a day. What is the price elasticity of supply (ceteris paribus)?
The market price for Brand X lager rises from £2 a pint to £2.10 a pint. The price elasticity of supply for Brand X is 1.6. A publican would like to change his supply of Brand X in response to this price change. He currently supplies 300 pints a day. What will he supply following the price change (ceteris paribus)?
Notice that the elasticities are positive. Supply curves tend to be upward sloping, so the relationship between price and quantity supplied is nearly always positive. Hence the value of the elasticity is nearly always positive. The only exceptions are zero and infinity. Zero is not strictly positive, but it isn't negative either.