Price Elasticity of Supply Calculator

The price elasticity of supply calculator measures how much the quantity supplied changes after changes in the price of a given good. Our tool not only helps you how to find a ratio of this concept, but we also explain the price elasticity of supply formula background and show you some practical examples.

Read further and learn the following:

• How to calculate price elasticity of demand and supply;
• What the importance of price elasticity of supply to businesses is;
• What the price elasticity of supply short-run and long-run is; and
• What the determinants of the price elasticity of supply are.

You may also try our other elasticity-related tools, such as income elasticity of demand calculator or the cross price elasticity calculator.

The price elasticity of supply measures how responsive the quantity supplied is to the price of a good. It is the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve.

We define the price elasticity of supply in the same way as the price elasticity of demand, with the only difference being that we consider movements along the supply curve instead of the demand curve.

We can formulate the price elasticity of supply equation in the following way:

1. Find the change in quantity supplied.
2. Determine change in price.
3. Divide the first value by the second value:

Price elasticity of supply = Change in quantity supplied / Change in price

You can compute the percentage change in the quantity supplied ($x_1$) and price ($x_2$) in two different ways:

1. In case of the standard way of computation:

   $\Delta x = (x_{i2} - x_{i1}) / x_{i1}$

2. For the price elasticity of supply midpoint formula:

   $\Delta x = (x_{i2} - x_{i1}) / \lparen (x_{i1} + x_{i2})/2\rparen$

where:

• $\Delta x$ — Change in quantity supplied or price;
• $x_{i1}$ — Quantity supplied or price in Period 1; and
• $x_{i2}$ — Quantity supplied or price in Period 2.

So far, we have learned that the price of elasticity of supply measures how much the quantity supplied changes in response to changes in the price. Let's suppose that the price of potatoes rises by 10 percent. In general, depending on the response of the quantity of potatoes supplied, the price elasticity of supply (PES) will likely fall into three categories:

1. If the quantity of potatoes supplied also rises by 10 percent in response, the price elasticity of supply for potatoes is 1 (10% / 10%) and supply is unit-elastic;

2. If the quantity supplied increases by 5 percent, the price elasticity of supply is 0.5 (PES = 5% / 10%) and supply is inelastic; and

3. If the quantity increases by 20 percent, the price elasticity of supply is 2 (PES = 20% / 10%) and supply is elastic.

   There are other possibilities, however, that constitute two extreme cases of price elasticity of supply:

4. One example is the supply of cell phone frequencies, i.e., the portion of the radio spectrum which can transmit cell phone signals. Since, for technical reasons, it is a fixed quantity, the supply curve is vertical, implying that the quantity supplied doesn't respond to the price (PES = 0). This is a case of perfectly inelastic supply.

5. Now, let's consider the supply curve for bread. Suppose that the cost of producing one loaf is 5 dollars. It means that if the price of bread goes under 5 dollars, all bakeries will start losing money and sooner or later go bankrupt. On the other hand, many producers would be happy to produce bread if its price rose above 5 dollars, increasing the supply considerably. The implied supply curve is a horizontal line at 5 dollars in this hypothetical case. Since even a slight rise in the price would increase the quantity supplied, the price elasticity of supply would be close to infinite (PES = ∞). This is a case of perfectly elastic supply.

In the default mode of the price elasticity of supply calculator, you need to set the following two parameters to get the result:

• Percent change in price; and
• Percentage change in quantity supplied.

You can also input additional numbers for Periods 1 and 2 separately, and we also provide the option for choosing between the standard and midpoint methods of estimation:

• Method — The standard approximation is selected by default, but you can calculate price elasticity of supply using the midpoint method;
• Price in Period 1;
• Price in Period 2;
• Quantity supplied in Period 1; and
• Quantity supplied in Period 2.

"Time is money" – says the well-known aphorism. It is particularly true in the case of the price elasticity of supply. The business' quick reaction to changing market conditions is crucial: firms aim to make supply more elastic to respond to increased demand and thereby obtain a greater profit.

There are multiple ways to get at this end:

• In case of volatile prices, they may invest in a spare and flexible capacity that can adapt to changes in demand;
• Paying employees overtime in case of increased production;
• Outsource production to other agents; and
• Introduce time management techniques, such as just in time, to increase supply and efficiency.

Flexibility doesn't come without a cost: firms need to find the optimal way to manage flexible supply and costs to reach long-term profitability.