Price elasticity of supply measures the responsiveness of quantity supplied given a change in price.
The equation for price elasticity of supply is similar to the equation for price elasticity of demand, but with the percentage change in quantity supplied over the percentage change in price.
If the percentage change in quantity supplied is greater than the percentage change in price, it indicates that supply is price elastic.
The quantity supplied of a good or service increases by 20% when the price increases by 10%.
If the production lag for a good or service is short, then supply is price elastic.
If the production lag for a good or service is long, then supply is price inelastic.
Supply is price inelastic when the quantity supplied increases by more than the increase in price.
If the percentage change in quantity supplied is less than the percentage change in price, it indicates that supply is price inelastic.
If the percentage change in quantity supplied is zero, it indicates that supply is unit price elastic.
Zero supply is perfectly price inelastic, meaning a change in price will never cause quantity supplied to change.
Infinity supplies are perfectly price elastic, meaning a change in price will always cause quantity supplied to change.