Economics Elasticity Of Supply Questions Medium
The concept of price elasticity of substitution refers to the responsiveness of consumers or producers to substitute one good or service for another in response to changes in their relative prices. It measures the degree to which the quantity demanded or supplied of a particular good or service changes when the price of a substitute good or service changes.
Price elasticity of substitution is calculated by dividing the percentage change in the quantity demanded or supplied of a good by the percentage change in the price of a substitute good. A high price elasticity of substitution indicates that consumers or producers are highly responsive to changes in relative prices and are willing to switch between goods or services easily. On the other hand, a low price elasticity of substitution suggests that consumers or producers are less responsive to price changes and are less likely to substitute between goods or services.
Understanding the price elasticity of substitution is crucial for businesses and policymakers as it helps in predicting and analyzing the impact of price changes on the demand and supply of goods or services. It also provides insights into market dynamics, competition, and the availability of substitutes.