Economics Elasticity Of Demand Questions Medium
The concept of price elasticity of supply refers to the measure of the responsiveness of the quantity supplied of a good or service to a change in its price. It quantifies the degree to which the quantity supplied changes in response to a change in price. Price elasticity of supply is calculated by dividing the percentage change in quantity supplied by the percentage change in price.
If the price elasticity of supply is greater than 1, it indicates that the quantity supplied is highly responsive to changes in price, making the supply elastic. In this case, a small change in price will result in a relatively larger change in quantity supplied. On the other hand, if the price elasticity of supply is less than 1, it suggests that the quantity supplied is not very responsive to changes in price, making the supply inelastic. In this scenario, a change in price will result in a proportionately smaller change in quantity supplied.
Understanding the price elasticity of supply is crucial for producers and policymakers as it helps in predicting and analyzing the impact of price changes on the quantity supplied. It also aids in determining the optimal pricing strategy and production levels for businesses, as well as assessing the potential market outcomes and efficiency of resource allocation.