a) Understanding of price elasticity of supply
Price Elasticity of Supply – measure of the responsiveness of quantity supplied to changes in the price of that good or service
It is the ease in which a producer is able to increase the supply of a good or service following a rise in its price
Price inelastic and elastic of supply
b) Use formula to calculate price elasticity of supply
Calculating Price Elasticity of Supply
PED = Percentage Change in Supply / Percentage Change in Price
E.g. Price increases from £4.75 to £5 and Supply increases from 240,078 to 262,087
• 0.25/4.75 = 0.053 • 22009/240078 = 0.092 • 0.092/0.053 =1.74 – elastic
c) Interpret numerical values of price elasticity of supply:
Perfectly and relatively elastic, and perfectly and relatively inelastic
Price inelastic = between 0 and 1 (perfectly inelastic = 0)
Price elastic = between 1 and infinity (perfectly elastic is infinity)
Unit elastic = 1
