Question

What does the price elasticity of supply mean? How do we measure it?

Answer 1

Price elasticity of supply (e_s) is defined as the degree of the responsiveness of quantity supplied, to the change in the price of a good.

It is expressed as:-

${\displaystyle e_s=\frac{\text{Percentage change in quality supplied}}{\text{Percentage change in price}}}$

${\displaystyle =\frac{\frac{\Delta Q}{Q}\times 100}{\frac{\Delta P}{P}\times 100}}$

${\displaystyle =\frac{\Delta Q}{Q}\times \frac{P}{\Delta P}}$

${\displaystyle =\frac{\Delta Q}{\Delta P}\times \frac{P}{Q}}$

Where

ΔQ = change in quantity supplied

ΔP = change in price

P = initial price

Q = initial supply