Price Elasticity of Supply: 

Price elasticity of supply measures how the quantity supplied responds to changes in price. As with demand, if the quantity supplied is very responsive, the good is said to be supply elastic. If the quantity supplied is not very responsive, then the good is said to be supply inelastic.

The formula for price elasticity of supply (PEoS) is:

PEoS = Percentage change in quantity supplied / Percentage change in price

The value of elasticity of supply is positive, because an increase in price is likely to increase the quantity supplied to the market and vice versa.

If the supply is perfectly inelastic, then a shift in the demand curve will have no effect on the equilibrium quantity supplied onto the market. Examples of this include the supply of tickets for sports or musical venues, and the short run supply of agricultural products (where the yield is fixed at harvest time) the elasticity of supply is zero when the supply curve is vertical.

If the supply is perfectly elastic, then a firm will be able to supply any amount at the same price. This happens when the firm can supply at a constant cost per unit and has no capacity limits to its production. A change in demand will change the equilibrium quantity but not the market clearing price.

If the supply is relatively inelastic, then a change in demand affects the price more than the quantity supplied. The reverse is the case when supply is relatively elastic. A change in demand can be met without a change in market price.

There are two main determinants of supply:

• The flexibility of sellers
• Time horizon

Generally supply is more elastic in the long run because a longer time period provides enough time for new factories to be built, new land to be cultivated and new firms to enter an industry.