What is the elasticity of supply?

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krishna-agrawala | College Teacher | (Level 3) Valedictorian

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In economics, elasticity of supply, or more appropriately price elasticity of supply refers to the change in quantity of a good a supplier or all the suppliers are willing to supply in relation to change in price of the good. Thus:

Price elasticity of supply = (Percentage change in quantity supplied)/Percentage change in price)

The elasticity of supply depends on the marginal cost of production of the goods. When prices are increased the suppliers will be willing to increase the supply to a point where there total revenue less is maximized. Similarly when prices are reduced, they would like to reduce their supplies to a level where their total revenue minus is total cost is maximized.

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