PRICE ELASTICITY OF SUPPLY

In economics, the price elasticity of supply measures the responsiveness of the quantity supplied of a good to its price.

It is measured as the percentage change in supply that occurs in response to a percentage change in price. For example, if, in response to a 10% rise in the price of a good, the quantity supplied increases by 20%, the price elasticity of supply would be 20%/10% = 2. (Case & Fair, 1999: 119).

The quantity of a good supplied can, in the short term, be different from the amount produced, as manufacturers will have stocks which they can build up or run down. In the long run, however, quantity supplied and quantity produced are synonymous.

Various research methods are used to calculate price elasticity:

• Test markets
• Analysis of historical sales data
• Conjoint analysis

See also

• Elasticity (economics)
• Supply and demand
• Price elasticity of demand
• Cross elasticity of demand

Elasticity of Demand (PED) is an elasticity that measures the nature and degree of the relationship between changes in quantity demanded of a good and changes in its price. The formula used to calculate the coefficient of price elasticity of demand is

Using all the differential calculus:

where: P = price Q = quantity

References

• Case, Karl E. & Fair, Ray C. (1999). Principles of Economics (5th ed.). Prentice-Hall. ISBN 0-13-961905-4.