The price elasticity of supply is used by economists to measure just how much the supply of a product is affected by changes in its price (Mankiw, 2024). When a small change in price leads to a large increase in quantity supplied, it is said to be elastic. Alternatively, when a larger price change leads to a small increase in quantity supplied, the good is said to be inelastic.
Elastic Supply
- Price elasticity of supply > 1
- A small price change leads to a larger percentage change in quantity supplied
- Examples include manufactured goods where production can be easily increased
Inelastic Supply
- Price elasticity of supply < 1
- A large price change causes a smaller percentage change in quantity supplied
- Examples included agricultural products and rare items
Unit Elastic Supply
- Price elasticity of supply = 1
- The percentage change in quantity supplied is exactly equal to the percentage change in price
Final Tip
Remember: elastic = supply responds significantly, while inelastic = supply responds less. Unit elastic means the percentage changes are equal.
Mankiw, N. G. (2024). Principles of Economics. Cengage Learning.
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