1. What is Price Elasticity of Supply?

Definition: Price elasticity of supply measures how much the quantity supplied of a good responds to a change in its price.

Purpose: It helps economists and businesses understand how sensitive producers are to price changes when deciding how much to produce.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( E_s \) — Price elasticity of supply (dimensionless)
• \( \%\Delta Q_s \) — Percentage change in quantity supplied (%)
• \( \%\Delta P \) — Percentage change in price (%)

Explanation: The percentage change in quantity supplied is divided by the percentage change in price to determine elasticity.

3. Interpreting the Results

Details:

• E_s > 1: Elastic supply (responsive to price changes)
• E_s = 1: Unit elastic supply
• E_s < 1: Inelastic supply (not very responsive)
• E_s = 0: Perfectly inelastic supply
• E_s = ∞: Perfectly elastic supply

4. Using the Calculator

Tips: Enter the percentage change in quantity supplied and percentage change in price. Price change cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What does a high elasticity value mean?
A: A high E_s (>1) means producers can easily increase output when prices rise, typical for goods with flexible production.

Q2: What factors affect supply elasticity?
A: Time horizon, production flexibility, availability of inputs, and storage capacity all influence elasticity.

Q3: How is this different from price elasticity of demand?
A: Demand elasticity measures consumer response to price changes, while supply elasticity measures producer response.

Q4: Can elasticity be negative?
A: No, supply elasticity is typically positive as higher prices usually lead to increased supply.

Q5: Why is time important for supply elasticity?
A: Supply becomes more elastic over time as producers have more opportunity to adjust their production processes.