Economics Elasticity Of Supply Questions Medium
There are three main types of supply elasticity:
1. Price Elasticity of Supply (PES): This measures the responsiveness of the quantity supplied to a change in price. It is calculated by dividing the percentage change in quantity supplied by the percentage change in price. PES can be elastic (greater than 1), inelastic (less than 1), or unitary elastic (equal to 1). If PES is elastic, it means that a small change in price leads to a relatively larger change in quantity supplied, indicating that suppliers are responsive to price changes. Conversely, if PES is inelastic, it means that a change in price has a relatively smaller impact on the quantity supplied, indicating that suppliers are less responsive to price changes.
2. Income Elasticity of Supply (IES): This measures the responsiveness of the quantity supplied to a change in income. It is calculated by dividing the percentage change in quantity supplied by the percentage change in income. IES can be positive or negative. A positive IES indicates that the quantity supplied increases as income increases, while a negative IES indicates that the quantity supplied decreases as income increases. The magnitude of IES determines whether supply is elastic or inelastic with respect to income.
3. Cross Elasticity of Supply (CES): This measures the responsiveness of the quantity supplied of one good to a change in the price of another related good. It is calculated by dividing the percentage change in quantity supplied of one good by the percentage change in the price of another good. CES can be positive or negative. A positive CES indicates that the quantity supplied of one good increases as the price of another related good increases, while a negative CES indicates that the quantity supplied of one good decreases as the price of another related good increases. The magnitude of CES determines whether supply is elastic or inelastic with respect to the price of another good.