Price Elasticity of Supply Calculator

How to Calculate Price Elasticity of Supply

Price elasticity of supply is a measure of the responsiveness of the quantity supplied of a good or service to a change in its price. This concept is crucial for businesses and economists to understand how production can adapt to price fluctuations in the market.

Price Elasticity of Supply Formula

The formula for calculating price elasticity of supply is:

$$\text{Price Elasticity of Supply} = \frac{\text{Percentage Change in Quantity Supplied}}{\text{Percentage Change in Price}}$$

Where:

• Percentage Change in Quantity Supplied = \\(\frac{Q_2 - Q_1}{Q_1} \times 100\\)
• Percentage Change in Price = \\(\frac{P_2 - P_1}{P_1} \times 100\\)
• \\(Q_1\\) and \\(P_1\\) are the initial quantity and price
• \\(Q_2\\) and \\(P_2\\) are the final quantity and price

Calculation Steps

1. Determine the initial price (P₁) and quantity supplied (Q₁).
2. Determine the final price (P₂) and quantity supplied (Q₂).
3. Calculate the percentage change in quantity supplied.
4. Calculate the percentage change in price.
5. Divide the percentage change in quantity supplied by the percentage change in price.
6. Take the absolute value of the result.

Example Calculation

Let's calculate the price elasticity of supply for a product with the following data:

• Initial Price (P₁): $10
• Final Price (P₂): $12
• Initial Quantity (Q₁): 100 units
• Final Quantity (Q₂): 120 units

Step 1: Calculate percentage change in quantity supplied

$$\text{Percentage Change in Quantity} = \frac{120 - 100}{100} \times 100 = 20\%$$

Step 2: Calculate percentage change in price

$$\text{Percentage Change in Price} = \frac{12 - 10}{10} \times 100 = 20\%$$

Step 3: Calculate price elasticity of supply

$$\text{Price Elasticity of Supply} = \frac{20\%}{20\%} = 1$$

Therefore, the price elasticity of supply for this product is 1, indicating unit elasticity.

Visual Representation

This diagram illustrates the change in supply due to a price change. The blue line represents the supply curve, and the red points show the initial and final price-quantity combinations. The slope of this line visually represents the price elasticity of supply.