Price Elasticity of Supply Meaning, Formula & Examples

What is price elasticity of supply?

The price elasticity of supply measures how responsive the quantity supplied of a product is when changing the price of it while all other factors are constant. According to price elasticity of supply formula, the price elasticity of supply is equal to the percentage of change in quantity supplied /Percentage of change in price.

Price elasticity of supply formula = Percentage of change in quantity supplied /Percentage of change in price.  

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The price elasticity of demand

The price elasticity of demand is a measure of the responsiveness of quantity demanded of the product when changing the price of the considered commodity while all other factors are constant. To calculate price elasticity of demand, we should divide the percentage change in quantity demanded by the percentage change in price.

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Cross price elasticity of demand

The cross-price elasticity of demand describes how quantity demanded of a product is changing when the price of another commodity is changing while all other factors are constant. Cross price elasticity of demand formula is percentage of change in quantity demanded of the considering good/ Percentage of change in price of the another good

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Cross Price Elasticity of Demand Meaning, Formula & Calculations

What does price elasticity of supply measure?

The price elasticity of supply measures the sensitivity of changes in the quantity of supply as the result of changes in the price of the particular good.

Why price elasticity of supply is always positive?

price elasticity of supply is always positive because the price elasticity of an upward-sloping supply curve is always positive. In other words, when the price is rising, the quantity of supplied is always increasing. The slope of the supply curve is always upward-sloping. There is a positive relationship between the price and quantity of supply. So, price elasticity of supply is always positive.

Price elasticity of supply is a positive number because of the positive relationship between the price and quantity of supplied.

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What is the difference between demand and quantity demanded?

Price elasticity of supply formula / Price elasticity of supply equation

To calculate price elasticity of supply, we should divide the percentage change in quantity supplied by the percentage change in price.

In other words, the basic eqation to price elasticity of supply is,

Price elasticity of supply formula = Percentage of change in quantity supplied /Percentage of change in price. 

If we do not have the percentage of change in quantity supplied and/ or the percentage of change in price, what we can do?

We can calculate price elasticity of supply using midpoint price elasticity of supply formula and point price elasticity of supply formula 

Let’s discuss about them.

Ways of calculating price elasticity of supply.

There are two major ways of calculating the price elasticity of supply. They are,

Midpoint price elasticity of supply

Point price elasticity of supply

So, let’s discuss about them.

Midpoint price elasticity of supply

Midpoint price elasticity of supply in other words, arc price elasticity of supply calculates the elasticity at the central point between the two points of the supply curve.

The midpoint price elasticity of the supply formula (midpoint price elasticity of supply equation) in other words, the arc price elasticity of the supply formula can be presented as follows

Midpoint formula for price elasticity of supply

Point price elasticity of supply

Point Elasticity calculates elasticity at a particular point of the supply curve. The formula for point price elasticity of supply (point price elasticity of supply equation) is as follows.

Point price elasticity of supply formula

Examples of price elasticity of supply

Example 1

Assume that price of computers is increasing 20 percent and as a result of it, computer producers increase the quantity of supply by 10 percent. So, calculate the price elasticity of supply.

Answer

For this example, we can apply basic formular for price elasticity of supply.

Price elasticity of supply = Percentage of change in quantity supplied/ Percentage of change in price

Price elasticity of supply = 10% / 20% = 0.5

That means when the price of computers is increasing 1 percent, as a result of it the supply of computers increasing 0.5 percent.

Example 2

The supply for apply was 10,000 kilos when the price of a kilo of apple was $10, and the supply for apply rose to 15,000 kilos when the price of a kilo of apple was increased to $15.

So, how to calculate midpoint price elasticity of supply?

Answer

In this example, to calculate the price elasticity of supply, we should apply the midpoint price elasticity of supply formula

That means when price of apply is increasing 1 percent and as a result of it, supply of apple is increasing 1 percent.

Example 3

The supply of sugar was 10,000 kilos when the price of a kilo of sugar was $2, and the supply for sugar increased to 15,000 when the price of a kilo of sugar was increased to $4.

How to calculate point price elasticity of supply when the supply for sugar was 10,000?

Answer

To calculate the point price elasticity of supply, we should apply the point price elasticity of supply formula

That means when price of sugar is increasing 1 percent, as a result of it the supply of sugar increasing 0.5 percent.