Key Points

The price elasticity of demand (which is often shortened to demand elasticity) is defined to be the percentage change in quantity demanded, q, divided by the percentage change in price, p. The formula for the demand elasticity (ǫ) is: ǫ = p q dq dp .

Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded—or supplied—divided by the percentage change in price.

1. The price elasticity of supply = % change in quantity supplied / % change in price.
2. When calculating the price elasticity of supply, economists determine whether the quantity supplied of a good is elastic or inelastic.
3. PES > 1: Supply is elastic. PES < 1: Supply is inelastic.

A perfectly elastic demand curve will be a straight line (horizontal) on a graph, where the x-axis will be the quantity, and the y-axis will be the price of the product. The market demand for a product is directly tied to the price of the product.

Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded (or supplied) divided by the percentage change in price.

The price elasticity of demand is the percentage change in the quantity demanded of a good or service divided by the percentage change in the price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.

Many factors determine the demand elasticity for a product, including price levels, the type of product or service, income levels, and the availability of any potential substitutes. High-priced products often are highly elastic because, if prices fall, consumers are likely to buy at a lower price.

The four factors that affect price elasticity of demand are (1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed.

9 Factors Affecting Price Elasticity of Supply

• Factor # 1. The Nature of the Industry:
• Factor # 2. Nature Constraints:
• Factor # 3. Risk-Taking:
• Factor # 4. The Nature of the Good:
• Factor # 5. The Definition of the Commodity:
• Factor # 6. Time:
• Factor # 7. The Cost of Attracting Resources:
• Factor # 8. The Level of Price:

The main factors affecting the price elasticity of supply include production time periods (e.g. the market period, the short run and the long run); the extent of inventories or ability to hold stocks; and the extent of excess capacity in the firm or the industry.

ECONOMICS UNIT 2 REVIEW

the ease with which a producer can change production to respond to price changes is the main factor that affects supply. producers that can respond more easily and quickly will have more elastic supply than producers who have a difficult time responding to price changes.

The price elasticity of supply is a measure of how much the quantity supplied of a good responds to a change in price of the good. How is price elasticity of supply related to the supply curve? A perfectly elastic supply curve is horizontal. Elastic supply has a slope of greater than 1.