Figure 4-6 Computing Price Elasticity of Supply

4.2 Price Elasticity of Supply

The concept of elasticity can be applied to supply as well as to demand.
Price elasticity of supply measures the responsiveness of the quantity
supplied to a change in the product’s price. It is denoted and defined as
follows:

This is often called supply elasticity. The supply curves considered in this
chapter all have positive slopes: An increase in price causes an increase in
quantity supplied. Such supply curves all have positive elasticities
because price and quantity change in the same direction.

Figure 4-6 shows a simple linear supply curve to illustrate the
measurement of supply elasticity. Between points A and B, the change in
price is $1.50 and the average price is $4.25. Between the same two
points, the change in quantity supplied is 20 units and the average
quantity is 40 units. The value of supply elasticity between points A and
is therefore



ηS

ηS=PercentagePercentagechangechangeinquantityinpricesupplied



ηS=ΔQ/ = = =1.42

̄Q ̄ ̄

Δp/p ̄

20 / 40

1.50/4.25

0.5

0.353