In economics, the price elasticity of supply measures the responsiveness of the quantity supplied of a good to its price.
It is measured as the percentage change in supply that occurs in response to a percentage change in price. For example, if, in response to a 10% rise in the price of a good, the quantity supplied increases by 20%, the price elasticity of supply would be 20%/10% = 2.
The quantity of a good supplied can, in the short term, be different from the amount produced, as manufacturers will have stocks which they can build up or run down. In the long run, however, quantity supplied and quantity produced are synonymous.
Various research methods are used to calculate price elasticity:
So, even though the formula says that the priceelasticity of demand is negative, we would say the elasticity of demand is 1.5 in the first example and 0.67 in the second.
Elasticity measures the magnitude of an economic effect in percentages.
Price"elastic" means the opposite: the relation is price sensitive.
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