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Question
Write short note on the following:
Percentage method.
Solution
Under the percentage method, the price elasticity of supply is given by the ratio of percentage change in the quantity supplied and percentage change in the price of a commodity.
Algebraically, it can be expressed as:
`Es = "Percentage Change in Quantity Supplied"/"percentage Change in Price"`
= `(+)((DeltaQ)/Q_1 xx 100)/((DeltaP)/P_1 xx 100)`
= `(+) (DeltaQ)/Q_1 xx P_1 /(DeltaP)`
= `(+) (DeltaQ)/(DeltaP) xx P_1 /(Q_1)`
Where:
ΔQ represents change in the quantity supplied i.e. (Q2−Q1)
ΔP represents change in the price i.e. (P2−P1)
P1 represents the initial price
P2 represents the final price
Q1 represents the initial quantity supplied
Q2 represents the final quantity supplied
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