Price elasticity of supply is defined as the percentage change in quantity supplied caused by a given percentage change in own price of the commodity. It is measured as the ratio between the percentage change in quantity supplied and the percentage change in the price of the commodity.
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Now, let's unravel the essence of the article's concept: Price Elasticity of Supply (PES). This fundamental economic concept is crucial for understanding how the quantity supplied of a commodity responds to changes in its own price. Price elasticity of supply is defined precisely as the percentage change in quantity supplied resulting from a given percentage change in the price of the commodity.
To break it down further, here are key concepts related to Price Elasticity of Supply:
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Price Elasticity of Supply (PES): As mentioned, it's the measure of how responsive the quantity supplied of a commodity is to changes in its own price. PES is calculated as the ratio of the percentage change in quantity supplied to the percentage change in price.
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Percentage Change: Both the percentage change in quantity supplied and the percentage change in price are essential components of the PES calculation. These changes are expressed in percentage terms to provide a standardized measure that is independent of the units used to measure quantity and price.
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Ratio Calculation: The PES is determined by dividing the percentage change in quantity supplied by the percentage change in price. This ratio helps to quantify the relationship between these two variables.
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Elasticity Categories: Based on the calculated PES, supply elasticity can be categorized as elastic, inelastic, or unitary elastic. If PES is greater than 1, supply is considered elastic, indicating a relatively responsive supply to price changes. If PES is less than 1, supply is inelastic, meaning quantity supplied is less responsive to price changes. A PES of exactly 1 denotes unitary elasticity.
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Interpretation: Understanding the value of PES is crucial for market participants, policymakers, and economists. A high PES suggests that suppliers can quickly adjust their production levels in response to price changes, while a low PES indicates that suppliers are less responsive.
In essence, the Price Elasticity of Supply encapsulates the dynamic interplay between price and quantity supplied, providing valuable insights into market behaviors and facilitating informed decision-making in the complex landscape of economics.
