Define price elasticity of supply. What are the two main methods for measuring elasticity of supply? Discuss any one method.
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Price elasticity of supply states that there is a direct relationship between price and quantity supplied of a commodity, other things remaining constant.Methods of measuring price elasticity of supply-1. Percentage method2. Geometric method1. Percentage method-According to this method, elasticity is measured as the ratio of percentage change in the quantity supplied to percentage change in the price.Price elasticity of supply (Es) = Percentage Change in quantity supplied / Percentage change in PriceWhere:1. Percentage change in Quantity supplied = Change in Quantity Supplied (∆Q) / Initial Quantity Supplied (Q) x 1002. Change in Quantity (∆Q) = New Quantity (Q1) – Initial Quantity (Q)3. Percentage change in Price = Change in Price (∆P) / Initial Quantity (P) × 1004. Change in Price (∆P) = New Price (P1) – Initial Price (P)