Price Elasticity Of Supply Calculator For Dummies

Price Elasticity of Supply Formula:

\[ PES = \frac{\frac{\text{New Q} - \text{Old Q}}{\text{Old Q}}}{\frac{\text{New P} - \text{Old P}}{\text{Old P}}} \]

New Quantity Supplied (New Q):

Old Quantity Supplied (Old Q):

New Price (New P):

Old Price (Old P):

Price Elasticity of Supply (PES):

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1. What is Price Elasticity of Supply?

Price Elasticity of Supply (PES) measures how much the quantity supplied of a good responds to a change in the price of that good. It shows the percentage change in quantity supplied resulting from a one percent change in price.

2. How Does the Calculator Work?

The calculator uses the PES formula:

\[ PES = \frac{\%\Delta Q}{\%\Delta P} = \frac{\frac{\text{New Q} - \text{Old Q}}{\text{Old Q}}}{\frac{\text{New P} - \text{Old P}}{\text{Old P}}} \]

Where:

\( \text{New Q} \) — New quantity supplied
\( \text{Old Q} \) — Original quantity supplied
\( \text{New P} \) — New price
\( \text{Old P} \) — Original price

Explanation: The formula calculates the ratio of the percentage change in quantity supplied to the percentage change in price.

3. Interpreting PES Values

Details:

PES > 1: Elastic supply (quantity is sensitive to price changes)
PES = 1: Unitary elastic
PES < 1: Inelastic supply (quantity is insensitive to price changes)
PES = 0: Perfectly inelastic (quantity doesn't change with price)
PES = ∞: Perfectly elastic (any price change leads to infinite quantity change)

4. Using the Calculator

Tips: Enter both old and new quantities and prices. All values must be positive numbers. Old quantity and old price cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What does a high PES value mean?
A: A high PES (>1) means suppliers can quickly increase production when prices rise, typical for goods with flexible production.

Q2: What factors affect PES?
A: Time period (more elastic in long run), production flexibility, availability of resources, and storage capacity.

Q3: What's the difference between PES and PED?
A: PES measures supplier response to price changes, while PED (Price Elasticity of Demand) measures consumer response.

Q4: Can PES be negative?
A: Normally no, since price and quantity supplied usually move in the same direction (positive relationship).

Q5: How is PES used in business?
A: Businesses use PES to understand how easily they can scale production in response to market price changes.