Price elasticity of supply (PES) measures the degree of responsiveness of quantity supplied of a product following a change in its price.
Formula Of PES
%ΔQS / %ΔP
Interpreting supply curve diagrams and price elasticity of supply
If PES is greater than 1, supply is price elastic — that is, quantity supplied is responsive to changes in price. This is because the percentage change in quantity supplied is greater than the percentage change in price
If PES is less than 1, supply is price inelastic — that is, quantity supplied is relatively unresponsive to changes in price. This is because the percentage change in quantity supplied is less than the percentage change in price
Graphs On PES
in this case, when price rises from P1 to P2, there is plenty of spare capacity for the firm, so the quantity supplied can increase by a greater proportion from Q1 to Q2, i.e. supply is price elastic. Examples of products with price elastic supply are mass-produced goods such as carbonated soft drinks and toothpaste
in this case, when price rises from P1 to P2, there is very little spare capacity for the firm, so the quantity supplied can only rise by a smaller proportion from Q1 to Q2. Examples are fresh fruit and vegetables that take time to grow (so supply is relatively unresponsive to changes in price)
Why should percentage change in quantity means inelastic?