Measurement of Price Elasticity of Supply

Measurement of Price Elasticity of Supply

1) The Point Method:

a) Applicable to a supply schedule:

\(E_s = \cfrac{\Delta Q}{\Delta P} \times \cfrac{P}{Q}\)

Note: There is no minus (\(-\)) sign in the formula unlike that of price elasticity of demand.

b) Applicable to a supply function:

i) \(E_s = \cfrac{\delta Q}{\delta P} \times \cfrac{P}{Q}\) (for a supply function with one independent variable).

ii) \(E_s = \cfrac{\partial Q}{\partial P} \times \cfrac{P}{Q}\) (for a supply function with two or more independent variables).

2) The Arc Method:

\(E_s = \cfrac{\Delta Q}{\Delta P} \times \cfrac{P_1 + P_2}{Q_1 + Q_2}\)