Price Elasticity of Supply:

Definition and Explanation:

Price elasticity of demand measures the degree of responsiveness of demand for a product due to a change in the price of that product.

"Price elasticity of supply measures how responsive producers are to a change in the price of good. It is defined as a measure of the responsiveness of quantity supplied to change in price".

Measurement and Formula:

It is measured by dividing the percentage change in quantity supplied by the percentage change in price. Thus the Percentage Method formula is:

E^s = Percentage Change in Quantity Supplied

        Percentage Change in Price

It can also be written as:

E^s = ΔQ/Q

                                                                                 ΔP/P

E^s = ΔQ x P

                                                                                ΔP    Q

Just like demand, supply can also be elastic or inelastic.

Elastic Supply:

Elasticity of supply represents the extent of change in supply in response to a change in price. If the amount supplied is highly responsive to a change in price, the supply is said to be elastic.

Inelastic Supply:

If the amount offered for sale is less affected by price change, then the supply is said to be inelastic.

Relation Between Price and Supply:

The elasticity of supply is great or small accordingly as the amount offered for sale increases much or little for a given rise in price. Boulding in his book "Economic Analysis" writes:

"The relation between a price and the quantity of supply is rather like the relation between a whistle and a dog, the louder the whistle, the faster comes the dog; raise the price and quantity supplied increase. If the dog is responsive in Economic terminology; elastic-quite a small crescendo in the whistle will send him bounding along. If the dog is unresponsive or inelastic, we may have to whistle very loudly before he comes along at all".