Price Elasticity of Supply
The price elasticity of supply (denoted as eS) evaluates how the quantity of a good supplied changes in response to variations in its price. Specifically, it is expressed mathematically as:
\[ e_S = \frac{% \Delta Q}{% \Delta P} = \frac{\Delta Q/Q}{\Delta P/P} \times 100 \]
Where:
- \( \Delta Q \) is the change in quantity of the good supplied.
- \( \Delta P \) is the change in market price.
For instance, consider the market for cricket balls. If the price rises from Rs 10 to Rs 30 and the quantity supplied increases from 200 to 1000 balls, we can calculate the price elasticity of supply. By determining the percentage changes in both price and quantity, we find that the price elasticity of supply is 2, indicating that supply is relatively responsive to price changes. If the supply curve is vertical, the elasticity is zero, indicating no responsiveness. Conversely, for a positively sloped supply curve, an increase in price results in an increase in supply, thus the elasticity is positive. The section also discusses the geometric method of determining elasticity at various points on a supply curve. Each point on a straight line supply curve will have a different elasticity value, emphasizing the importance of understanding these dynamics in market behavior.