Price Elasticity of Supply Formula - Understanding & the Types

In economics, the concept of price elasticity of supply (PES) measures the responsiveness of the quantity supplied of a good or service to changes in its price. It quantifies how producers adjust the quantity supplied in response to changes in market prices. Understanding price elasticity of supply is essential for analyzing producer behavior, predicting market outcomes, and formulating effective economic policies.

Price elasticity of supply formula is a very vital topic to be studied for the commerce related exams such as the UGC-NET Commerce Examination.

In this article, the learners will be able to know about the price elasticity of apply formula along with certain other related topics in detail.

Price Elasticity of Supply

The price elasticity of supply is a crucial concept in economics. It essentially refers to the degree to which the supply of a particular product is influenced by changes in its price. Simply put, it establishes a numerical relationship between the product's price and its supply.

This information is vital for businesses as it allows them to gauge their adaptability to fluctuating market conditions, particularly with respect to price changes.

The primary factor influencing the supply of goods is their price. Hence, the price elasticity of supply can be defined as the proportional change in the quantity supplied per proportional change in the price.

Price Elasticity of Supply Formula

The formula to calculate price elasticity of supply is as follows:

Price Elasticity of Supply = % change in quantity supplied/% change in price

Let's delve into the different types of price elasticity of supply:

• Perfectly inelastic: This scenario depicts a situation where the quantity supplied remains the same, regardless of the price.
• Perfectly elastic: In this case, the quantity supplied can be infinite, irrespective of price variations.
• Unitary elastic: This is characterized by a linear supply curve, indicating that the changes in price and supply are directly proportional. Thus, the elasticity of supply equals one.

Conclusion

Price elasticity of supply is a vital concept in economics that measures how producers respond to changes in market prices by adjusting the quantity supplied of goods or services. By calculating the price elasticity of supply, economists and policymakers can better understand producer behavior, predict market outcomes, and design effective policies to address issues such as supply shortages, price volatility, and market equilibrium.

Price elasticity of supply formula is a vital topic as per several competitive exams. It would help if you learned other similar topics with the Testbook App.