Business, Legal & Accounting Glossary
In economics, the price elasticity of supply is defined as a numerical measure of the responsiveness of the quantity supplied of product (A) to a change in the price of product (A) alone.
It is measured as the percentage change in supply that occurs in response to a percentage change in price. For example, if, in response to a 10% rise in the price of a good, the quantity supplied increases by 20%, the price elasticity of supply would be 20%/10% = 2. (Case & Fair, 1999: 119).
The quantity of a good supplied can, in the short term, be different from the amount produced, as manufacturers will have stocks which they can build up or run down. In the long run, however, quantity supplied and quantity produced are synonymous.
The determinants of the price elasticity of supply are: The storage capacity of the firms (if they have more goods in stock they will be able to respond to a change in price more quickly); the production spare capacity (the more spare capacity there is in the industry the easier it should be to increase output if the price goes up); the number of producers; the length of the production process; the time period and the factor immobility (the ease of resources to move into the industry)
Various research methods are used to calculate price elasticity:
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This glossary post was last updated: 25th April, 2020 | 2 Views.