Price Elasticity of Supply – Meaning
The price elasticity of supply of goods quantifies the receptiveness of quantity supplied to changes in the cost price of the commodity. Specifically, the cost price elasticity of supply is denoted by eS, is defined as follow:
Price Elasticity of Supply Formula
Price elasticity of supply, eS = Percentage change in quantity supplied / Percentage change in price
∆Q/Q × 100 Divided by ∆P/P × 100 = ∆Q/Q × P/∆P
Where ∆Q is the change in the quantity of the commodity supplied to the market place as market cost price changes by ∆P.
Factors Affecting Price Elasticity of Supply
Nature of Industry: Nature of industry that is being discussed is one of the most important factors that influence the price elasticity of supply.
It will help in understanding the extent to which production can be increased with a corresponding change in the price of the product.
Nature of Goods: The availability of substitutes is also one of the factors that determine the elasticity of supply. Substitutes are those goods to which production factors can be transferred easily.
Commodity Definition: Commodity definition also plays a significant role in the elasticity of supply. If a commodity has a narrow definition, then it will have greater elasticity of supply and vice versa.
Time: Time is also one of the important factors that determine the price elasticity as it is seen that price is more elastic in the long run as compared to short-run firms. This is due to the reason that in the long run, firms can hire more labour, invest more capital in machinery for boosting production, which results in an increase in supply.
This concludes the article on the topic of Price Elasticity of Supply, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.