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Price Elasticity Of Supply Formula:
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Price Elasticity of Supply (PES) measures the responsiveness of quantity supplied to a change in price. It indicates how much the quantity supplied of a good changes when its price changes, holding all other factors constant.
The calculator uses the Price Elasticity of Supply formula:
Where:
Explanation: PES measures the percentage change in quantity supplied resulting from a 1% change in price. It helps determine how easily producers can adjust their output in response to price changes.
Details: Understanding supply elasticity is crucial for businesses in production planning, for governments in tax policy design, and for economists in market analysis. It helps predict how market supply will respond to price fluctuations.
Tips: Enter the percentage change in quantity supplied and percentage change in price as decimal numbers (e.g., 10% as 10). The price change cannot be zero as division by zero is undefined.
Q1: What does different PES values indicate?
A: PES > 1 = elastic supply; PES < 1 = inelastic supply; PES = 1 = unitary elastic; PES = 0 = perfectly inelastic; PES = ∞ = perfectly elastic.
Q2: What factors affect supply elasticity?
A: Production time, availability of inputs, technology, spare capacity, and ability to store products all influence how quickly suppliers can respond to price changes.
Q3: How is PES different from PED?
A: PES measures supplier responsiveness to price changes, while Price Elasticity of Demand (PED) measures consumer responsiveness to price changes.
Q4: Why is PES usually positive?
A: PES is typically positive because higher prices incentivize producers to supply more quantity, following the law of supply.
Q5: Can PES change over time?
A: Yes, supply becomes more elastic over time as producers have more opportunity to adjust their production processes and capacity.