Price elasticity of Supply

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    Price elasticity of Supply

     

    Definition:

     

    PES:  A measure used to show the responsiveness, or elasticity, of the quantity supplied of a good

    or service to a change in its price. The PES is always a positive number

     

    Formula

     

    PED = % change in Quantity Supplied             PED = (New QS – Old QS) x100

                          % change in Price                          ,              (New P – Old P) x 100

     

    Inelastic  : The PED value is between 0 and 1. It tends to have few substitutes and takes time to alter the

    quantity of production.

     

    Elastic     : The PED value is between 1 and ∞.

     

    Note: The amount supplied is not always equal to supply and may create shortages and surplus.

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