Price Elasticity of Supply

Price elasticity of supply

Price elasticity of supply is the responsiveness of supply to a change in price. It can be calculated using the following formula:

% change in quantity supplied

% change in price

• Since an increase in price causes supply to increase and a decrease in price will cause supply to decrease, price elasticity of supply will be positive.
• If it is more than 1 it is said to be elastic, less than 1 it is inelastic and if it is 1 it is of unit elasticity.

Factors affecting price elasticity of supply:

• The amount of excess capacity in the industry. If…