Price Elasticity of Supply
How responsive quantity supplied is to a change in price.
Formula
Variables
Example
Supply +15% when price +10%: E_s = 1.5
How it works
Price elasticity of supply measures how strongly producers change the quantity they supply when market price changes. It is calculated as a ratio of percentage change in quantity supplied to percentage change in price, so it lets you compare responsiveness across different goods without being distorted by the units used. A value above 1 means supply responds more than proportionally, a value below 1 means supply is relatively unresponsive, and a value of 1 means the percentage changes are equal.
When to use it
Use this when analysing how easily firms can expand or cut production after a price change, such as in agriculture, manufacturing, or housing. It is also useful for comparing supply responsiveness across markets with very different price levels.
Worked example, step by step
A firm's price rises from $20 to $25, and quantity supplied rises from 80 units to 100 units. Step 1: Calculate % change in quantity supplied = ((100 - 80) / 80) × 100 = 25% Step 2: Calculate % change in price = ((25 - 20) / 20) × 100 = 25% Step 3: Apply the formula: E_s = %ΔQ_s / %ΔP = 25% / 25% = 1 Final answer: The price elasticity of supply is 1, so supply is unit elastic.
Common mistakes to avoid
- Using quantity demanded instead of quantity supplied
- Dividing percentage change in price by percentage change in quantity supplied
- Using the absolute change in price and quantity instead of percentage changes
Did You Know?
Supply is more elastic over the long run, when firms have time to build capacity and enter markets.
Share this formula
More in Economics
View allGDP (Expenditure Approach)
BasicNational output measured as total spending by households, firms, government and net exports.
GDP Growth Rate
BasicThe percentage change in real output between two periods.
Inflation Rate
BasicThe rate at which the general price level rises over time.
Unemployment Rate
BasicThe share of the labor force that is jobless and actively seeking work.
Real GDP
IntermediateOutput adjusted for inflation, so growth reflects real production, not rising prices.
GDP Deflator
IntermediateA broad price index covering all goods in GDP, not just a consumer basket.