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Price Elasticity of Supply

 

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.

 

 

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