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# Introduction to price elasticity of supply

AP.MICRO:
MKT‑3 (EU)
,
MKT‑3.E (LO)
,
MKT‑3.E.6 (EK)
,
MKT‑3.E.7 (EK)

## Video transcript

we've done many videos on the price elasticity of demand now we're going to focus on the price elasticity of supply and it's a very similar idea it's just being applied to supply now it's a measure of how sensitive our quantity supplied is two percent changes in price and we will calculate it as our percent change in quantity supplied for a given for a given percent change in price percent change in price now to make this a little bit more tangible let's look at a simple market let's say this is the market for Apple's right over here where our vertical axis is price and this could be thousands of dollars per ton and then our horizontal axis is quantities and maybe this isn't tons per day and this supply schedule and this supply curve are essentially describing the same data so let's think about our price elasticity of supply as we go from point a point A to point B well on this supply schedule point a is this point right over here our price is for our quantity is one and point B is right over here so let us calculate from point A to point B our price elasticity of supply so first of all what is going to be our percent change in price well we're going from 4 to 6 so it's an increase of 2 so our percent change in price is going to be equal to 2 is how much we increase from a base of 4 times 100% and that of course is going to be equal to a 50% increase in price and then what is going to be our percent change in quantity well we're going from 1 to 2 so we're starting at a base of 1 we are increasing by 1 and then multiply that times 100% that gives us 100% so when we have a 50% increase in price that resulted going from point A to point B in a hundred percent increase increase in quantity supplied so 100 percent divided by 50 percent that is going to give us this is going to be equal to two now what if we go from point B to Point C so this is point C right over here I encourage you pause this video and see if you can calculate the price elasticity of supply when going from point B to Point C well we're going to do a similar similar calculation our change our percent change in price we start at a base of six and we are increasing by two so we're going to multiply that times 100% so that is approximately this is one-third times 100% it's approximately 33 point three percent and then what is our percent change in quantity supplied well we are going to go from two to three so we start at a base of two we increase by 1 so plus one and multiply times 100% and so that's going to be given it's going to be equal to 50% and so when we have a one-third increase or thirty three point three percent increase in our price we have a fifty percent increase of our quantity supplied when we go from point B to Point C right over here and then one way to think about it is 50 percent divided by 1/3 is the same thing as 50 percent times 3 and so this is going to be equal to this is going to be equal to 1.5 so just as we saw when we calculated price elasticity of demand even when you have a linear curve here your price elasticity of supply can change it is not the same thing as slope now another thing to keep in mind is the way that I calculated price elasticity of supply in this video which is arguably the simplest way you would not get the same value when you're calculating the magnitude going from A to B then if you went from B to a there are slightly more advanced techniques the midpoint technique for example that will give you the same answer regardless of which direction you go in but that's beyond the scope of this first video now just as we discussed in the demand case there are cases that you would consider to be more inelastic supply in cases where you would consider to be more elastic supply so one way to think about it is if the magnitude of your price elasticity of the supply is less than 1 and of course this is magnitude so it's going to be greater than or equal to 0 well then you're talking about in elastic price elasticity of supply in elastic that's a situation in which our quantity supplied is not going to change so much depending on is not going to be so sensitive to our change in price now if our price elasticity of supply is greater than 1 that's generally considered to be elastic for a given percent change in price you're getting a larger than that percent change in quantity supplied