The elasticity of supply shows the dependence of the amount of supply and the market price for these goods. In other words, having learned the indicator of the elasticity of supply, we will be able to understand by what percentage the quantity of a given type of goods on the market will change when the price rises / falls by 1%. The coefficient of elasticity can be calculated relative to many factors of production, but most often it is the price elasticity of supply that is calculated.
It is necessary
- - calculator;
- - the amount of supply before and after the price change;
- - the level of original and modified prices.
Instructions
Step 1
First, you need to find out the amount by which the offer has changed after the price change. To do this, subtract from the supply indicator after the price change Q1 the corresponding value before its change Q0.
Step 2
Find the sum of the supply values before and after the price change for products Q1 + Q0.
Step 3
Calculate the amount by which the product price has changed. To do this, subtract the original price P0 from the price after the change in P1.
Step 4
Add the original and revised prices P1 + P0.
Step 5
Divide the price change from the first step, Q1-Q0, by the sum of these numbers from the second step, Q1 + Q0.
Step 6
Find the ratio of the indicators obtained in the third and fourth steps. Divide P1-P0 by P1 + P0.
Step 7
Finally, find the ratio of the numbers resulting from steps 5 and 6. The resulting number is the measure of the price elasticity of the supply.
Step 8
If the indicator is equal to one, then this means that when the price increases by 1%, it leads to a similar increase in the supply of goods on the market. If the elasticity of supply is greater than one, then the supply is elastic, and an increase in price will lead to an increase in supply, and vice versa.
