The Price elasticity of supply (PES, Es) is an economic term that expresses the responsiveness of a supplied quantity of a certain good to changes in its price.
ES = ((Q2-Q1):((Q2+Q1):2) ):((P2-P1):((P2+P1):2))
Diffentiation occurs according to the size of its coefficient:
- Inelastic supply - the change in price causes a smaller percentage change in quantity supplied, ES<1.
- Unit elastic supply - a change in price causes the same percentage change in quantity supplied, ES=1.
- Elastic supply - a change in price causes a greater percentage change in quantity supplied, ES>1.
The use of Price elasticity of supply in practice: A price increase on the market usually causes an increase in the quantity supplied and a price decrease on the market usually causes a decrease in the quantity supplied. The coefficient of the price elasticity of supply is used more often in economic theory than in commercial practice. The actual elasticity of supply of course depends on the ability of the market to absorb the quantity supplied (the market gradually reaches saturation).