Of course, consumption is not the only thing that changes when prices go up or down. Businesses also respond to price in their decisions about how much to produce. Economists define the price elasticity of supply as the responsiveness of the quantity supplied of a good to its market price.
More precisely, the price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.
Suppose the amount supplied is completely fixed, as in the case of perishable fish brought to market to be sold at whatever price they will fetch. This is the limiting case of zero elasticity, or completely inelastic supply, which is a vertical supply curve.
At the other extreme, sat that a tiny cut in price will cause the amount supplied to fall to zero, while the slightest rise in price will coax out an indefinitely large supply. Here, the ratio of the percentage change in quantity supplied to percentage change in price is extremely large and gives rise to a horizontal supply curve. This is because the polar case of infinitely elastic supply.
Between these extremes, we call elastic or inelastic depending upon whether the percentage change in quantity is larger or smaller than the percentage change in price.
More precisely, the price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.
Suppose the amount supplied is completely fixed, as in the case of perishable fish brought to market to be sold at whatever price they will fetch. This is the limiting case of zero elasticity, or completely inelastic supply, which is a vertical supply curve.
At the other extreme, sat that a tiny cut in price will cause the amount supplied to fall to zero, while the slightest rise in price will coax out an indefinitely large supply. Here, the ratio of the percentage change in quantity supplied to percentage change in price is extremely large and gives rise to a horizontal supply curve. This is because the polar case of infinitely elastic supply.
Between these extremes, we call elastic or inelastic depending upon whether the percentage change in quantity is larger or smaller than the percentage change in price.
