Elasticity of Supply
Elasticity of Supply The term elasticity shows the reaction of one variable with respect to a change in other variables on which it is dependent. In economics, the term elasticity refers to a ratio of the relative changes in two quantities. It measures the responsiveness of one variable to the changes in another variable. The elasticity of supply is a measure of the degree of responsiveness of quantity supplied to a given change in price. It can be expressed as follows: % Δ Quantity Supplied PES = ————————————– % Δ Price Generally, the co-efficient of price-elasticity of supply always holds a positive sign because there is a direct relationship between the price and quantity supplied. It increases with a rise in price and decreases with a fall in price. Symbolically, The value of elasticity coefficients will vary from 0 to infinity. There are 5 types of ...