How to calculate price elasticity supply
The price elasticity of supply = % change in quantity supplied / % change in price.
When calculating the price elasticity of supply, economists determine whether the quantity supplied of a good is elastic or inelastic.
PES > 1: Supply is elastic. PES < 1: Supply is inelastic. PES = 0: if the supply curve is vertical, and there is no response to prices. PES = infinity: if the supply curve is horizontal.
To calculate the price elasticity of supply, you need the following information:
1. Initial Quantity Supplied: Determine the quantity supplied of a good or service at the starting price.
2. Final Quantity Supplied: Determine the quantity supplied of the same good or service at a different price.
3. Initial Price: Identify the starting price at which the initial quantity was supplied.
4. Final Price: Identify the new price at which the final quantity is supplied.
Once you have these values, follow these steps to calculate the price elasticity of supply:
1. Calculate the percentage change in quantity supplied: Subtract the initial quantity supplied from the final quantity supplied and divide it by the initial quantity supplied. Multiply the result by 100 to convert it into a percentage.
Percentage Change in Quantity Supplied = ((Final Quantity Supplied - Initial Quantity Supplied) / Initial Quantity Supplied) * 100
2. Calculate the percentage change in price: Subtract the initial price from the final price and divide it by the initial price. Multiply the result by 100 to convert it into a percentage.
Percentage Change in Price = ((Final Price - Initial Price) / Initial Price) * 100
3. Divide the percentage change in quantity supplied by the percentage change in price:
Price Elasticity of Supply = Percentage Change in Quantity Supplied / Percentage Change in Price
The result will give you the price elasticity of supply. If the value is greater than 1, supply is elastic, meaning that quantity supplied is responsive to changes in price. If the value is less than 1, supply is inelastic, indicating that quantity supplied is not very responsive to price changes. If the value is exactly 1, supply is unitary elastic.