Price elasticity of supply states that there is a direct relationship between price and quantity supplied of a commodity, other things remaining constant.
Methods of measuring price elasticity of supply-
1. Percentage method
2. Geometric method
1. Percentage method-
According to this method, elasticity is measured as the ratio of percentage change in the quantity supplied to percentage change in the price.
Price elasticity of supply (Es) = Percentage Change in quantity supplied / Percentage change in Price
Where:
1. Percentage change in Quantity supplied = Change in Quantity Supplied (∆Q) / Initial Quantity Supplied (Q) x 100
2. Change in Quantity (∆Q) = New Quantity (Q1) – Initial Quantity (Q)
3. Percentage change in Price = Change in Price (∆P) / Initial Quantity (P) × 100
4. Change in Price (∆P) = New Price (P1) – Initial Price (P)
