Elasticity
of supply measures the change in the amount that a firm supplies in response
to a change in price. It is measured as follows
percentage change in quantity supplied
percentage change in price
Again
the Q is on top, remember QPR.
Values of price elasticity of supply
·
Elasticity is greater than one  the good is elastic and is
highly responsive to changes in price. A percentage change in price leads to
a larger percentage change in the quantity supplied.
·
Elasticity is equal to one  the good has unitary elasticity, a
percentage change in price will lead to an equal percentage change in the
quantity supplied.
·
Elasticity is less than one  the good is inelastic and not
very responsive to changes in price. A percentage change in price leads to a
smaller percentage change in quantity.
·
Elasticity is
equal to zero  the good is perfectly inelastic and a change in price lead to
no change in the quantity supplied.
·
Elasticity is equal to infinity  the good is perfectly elastic
and any decrease in price will cause the quantity supplied to fall to zero.
