What is the formula for price elasticity of supply (PES)?

What is the formula for price elasticity of supply (PES)?

• A. PES = (%ΔQS/%ΔP)
• B. PES = (%ΔQD/%ΔP)
• C. PES = (%ΔQS/%ΔD)
• D. PES = (%ΔP/%ΔQS)

Answer: (A)

Price elasticity of supply shows how much the quantity supplied changes in response to a change in price. The idea is to compare how big the responses are on both sides, using percentage changes. The standard formula is PES = (%ΔQS) / (%ΔP), meaning the percentage change in quantity supplied divided by the percentage change in price. Because higher prices usually encourage more production, this elasticity is typically positive, and its size tells us how responsive producers are: a larger number means producers are more responsive; a smaller number means they are less responsive. Some people use the absolute value or the midpoint formula to avoid issues with the starting point, but the basic concept remains comparing QS changes to price changes.

Price elasticity of supply shows how much the quantity supplied changes in response to a change in price. The idea is to compare how big the responses are on both sides, using percentage changes. The standard formula is PES = (%ΔQS) / (%ΔP), meaning the percentage change in quantity supplied divided by the percentage change in price. Because higher prices usually encourage more production, this elasticity is typically positive, and its size tells us how responsive producers are: a larger number means producers are more responsive; a smaller number means they are less responsive. Some people use the absolute value or the midpoint formula to avoid issues with the starting point, but the basic concept remains comparing QS changes to price changes.