Price elasticity of supply
Also called: PES, Elasticity of supply, eS · Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
Price elasticity of supply measures how strongly the quantity supplied responds to a change in price: eS = %ΔQs / %ΔP = (ΔQ/Q) × (P/ΔP) Here %ΔQs is the percentage change in quantity supplied and %ΔP is the percentage change in price. A vertical supply curve has eS = 0, because quantity does not change at all. A horizontal supply curve has eS = ∞, and an upward-sloping curve has eS > 0. The measure is unit-free: it does not depend on whether quantity is counted in kg or tonnes. Supply becomes more elastic over time, with spare capacity and with storable goods.
Example
The price of cricket balls rises from ₹10 to ₹30, a 200% rise. Output rises from 200 to 1,000 balls, a 400% rise. So eS = 400/200 = 2, which is elastic. Farm supply in India is inelastic in the short run, because sowing is decided a season ahead. So a shock to tomato or onion demand or weather shows up mostly as a price swing.
Don't confuse with
- Price elasticity of demand: it uses the same percentage method but measures how buyers respond. It is usually negative, while eS is usually positive.