price elasticity of supply

(noun)

A numerical measure of the responsiveness of the quantity supplied of a product to a change in the price of the product alone.

Related Terms

Examples of price elasticity of supply in the following topics:

  • Measuring the Price Elasticity of Supply

    • The price elasticity of supply is the measure of the responsiveness of the quantity supplied of a particular good to a change in price.
    • The price elasticity of supply (PES) is the measure of the responsiveness of the quantity supplied of a particular good to a change in price (PES = % Change in QS / % Change in Price).
    • The price elasticity of supply is directly related to consumer demand.
    • In this case, the price elasticity of supply determines how sensitive the quantity supplied is to the price of the good.
    • When calculating the price elasticity of supply, economists determine whether the quantity supplied of a good is elastic or inelastic.

  • Definition of Price Elasticity of Supply

    • The price elasticity of supply is the measure of the responsiveness in quantity supplied to a change in price for a specific good.
    • In economics, elasticity is a summary measure of how the supply or demand of a particular good is influenced by changes in price.
    • The price elasticity of supply (PES) is the measure of the responsiveness in quantity supplied (QS) to a change in price for a specific good (% Change QS / % Change in Price).
    • The state of these factors for a particular good will determine if the price elasticity of supply is elastic or inelastic in regards to a change in price.
    • The result of calculating the elasticity of the supply and demand of a product according to price changes illustrates consumer preferences and needs .

  • Tax Incidence and Elasticity

    • Tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply.
    • The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply.
    • If the consumer is elastic, the consumer is very sensitive to price.
    • In most markets, elasticities of supply and demand are fairly similar in the short-run, as a result the burden of an imposed tax is shared between the two groups albeit in varying proportions .
    • In a scenario with inelastic supply and elastic demand, the tax burden falls disproportionately on suppliers.

  • Impact of Changing Price on Producer Surplus

    • Producer surplus is affected by changes in price, the demand and supply curve, and the price elasticity of supply.
    • Changes in the price level, the demand and supply curves, and price elasticity all influence the total amount of producer surplus, other things held constant.
    • Price elasticity of supply is the relationship between price and quantity changes.
    • When supply is elastic, producers can increase production without much price or cost change.
    • Examine producer surplus in terms of changes in demand, supply, price, and price elasticity

  • Taxation Impact on Economic Output

    • The burden of the tax is not dependent on whether the state collects the revenue from the producer or consumer, but on the price elasticity of supply and the price elasticity of demand.
    • Because supply is inelastic, the firm will produce the same quantity no matter what the price.
    • Because demand is elastic, the consumer is very sensitive to price.
    • A tax increase does not affect the demand curve, nor does it make supply or demand more or less elastic.
    • When supply is inelastic but demand is elastic, the majority of the tax is paid for by the consumer.

  • Applications of Elasticities

    • In economics, elasticity refers to how the supply and demand of a product changes in relation to a change in the price.
    • In economics, elasticity refers to the responsiveness of the demand or supply of a product when the price changes.
    • If a change in the price of a product significantly influences the supply and demand, it is considered "elastic."
    • An elastic demand curve shows that an increase in the supply or demand of a product is significantly impacted by a change in the price .
    • Give examples of inelastic and elastic supply in the real world

  • Interpretations of Price Elasticity of Demand

    • The price elasticity of demand (PED) explains how much changes in price affect changes in quantity demanded.
    • The price elasticity of demand (PED) is a measure of the responsiveness of the quantity demanded of a good to a change in its price.
    • Perfectly inelastic demand is graphed as a vertical line and indicates a price elasticity of zero at every point of the curve.
    • The price elasticity of demand for a good has different values at different points on the demand curve.
    • Describe the relationship between price elasticity and the shape of the demand curve.

  • Calculating Elasticities

    • The basic formula for the price elasticity of demand (percentage change in quantity demanded divided by the percentage change in price) yields an accurate result when the changes in quantity and price are small.
    • This happens because the price elasticity of demand often varies at different points along the demand curve and because the percentage change is not symmetric.
    • Two alternative elasticity measures can be used to avoid or minimize the shortcomings of the basic elasticity formula.
    • The formula provided above would yield an elasticity of 0.4/(-1) = -0.4.
    • The point elasticity is the measure of the change in quantity demanded to a tiny change in price.

  • The Demand Curve in Perfect Competition

    • Price is determined by the intersection of market demand and market supply; individual firms do not have any influence on the market price in perfect competition.
    • Once the market price has been determined by market supply and demand forces, individual firms become price takers.
    • The demand curve for an individual firm is thus equal to the equilibrium price of the market .
    • The horizontal demand curve indicates that the elasticity of demand for the good is perfectly elastic.
    • The demand curve for an individual firm is equal to the equilibrium price of the market.

  • Measuring the Price Elasticity of Demand

    • The price elasticity of demand (PED) is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
    • The price elasticity of demand (PED) captures how price-sensitive consumers are for a given product or service by measuring the responsiveness of quantity demanded to changes in the good's own price.
    • This is in contrast to measuring the responsiveness of the good's demand to a change in price for some other good (a complement or substitute), which is called the cross-price elasticity of demand.
    • The own-price elasticity of demand is often simply called the price elasticity.
    • The following formula is used to calculate the own-price elasticity of demand: