Price Elasticity of Supply Measure
An Price Elasticity of Supply Measure is a price elasticity measure for the responsiveness between a supply change in response to an aggregate (one person) price change (with all other factors held as equal).
- AKA: Supply Elasticity, PES.
- Context:
- output: a Price Elasticity of Supply Score (which can range from being a supply inelastic, such as nuclear power, to supply elastic, such as firms operating below full capacity).
- It can be represented by a Price Elasticity of Supply Curve.
- It can be expressed as [math]\displaystyle{ E_s = \frac{\%\ \mbox{change in supply demanded}}{\%\ \mbox{change in price}} = \frac{\% \Delta S}{\% \Delta P} = \frac{\Delta S_d/S_d}{\Delta P/P} }[/math].
- It can range from being a Short-Run PES to being a Long-Run PES.
- It can (typically) increase as suppliers reach Capacity Limits and find it hard to increase output in the Short-Run PES.
- Example(s):
- Counter-Example(s):
- See: Demand Curve.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/Price_elasticity_of_supply Retrieved:2014-11-30.
- Price elasticity of supply (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.
The elasticity is represented in numerical form, and is defined as the percentage change in the quantity supplied divided by the percentage change in price.
When the coefficient is less than one, the said good can be described as inelastic ; when the coefficient is greater than one, the supply can be described as elastic.[1] An elasticity of zero indicates that quantity supplied does not respond to a price change: it is "fixed" in supply. Such goods often have no labor component or are not produced, limiting the short run prospects of expansion. If the coefficient is exactly one, the good is said to be unitary elastic.
The quantity of goods supplied can, in the short term, be different from the amount produced, as manufacturers will have stocks which they can build up or run down.
- Price elasticity of supply (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.
- https://lumen.instructure.com/courses/196787/pages/Section8-18?module_item_id=4541557
- QUOTE:
*** The price elasticity of supply measures the responsiveness of quantity supplied to changes in price. It is the percentage change in quantity supplied divided by the percentage change in price. It is usually positive.
- Supply is price inelastic if the price elasticity of supply is less than 1; it is unit price elastic if the price elasticity of supply is equal to 1; and it is price elastic if the price elasticity of supply is greater than 1. A vertical supply curve is said to be perfectly inelastic. A horizontal supply curve is said to be perfectly elastic.
- The price elasticity of supply is greater when the length of time under consideration is longer because over time producers have more options for adjusting to the change in price.
- QUOTE:
2013
- http://www.economicshelp.org/blog/7019/economics/examples-of-elasticity/
- QUOTE: Inelastic supply means an increase in price causes a smaller % change in supply. It means firms have difficulty increasing supply in response to a rise in price. …
… Elastic supply means an increase in price causes a bigger % change in supply. It means firms can easily increase supply in response to a change in price.
- QUOTE: Inelastic supply means an increase in price causes a smaller % change in supply. It means firms have difficulty increasing supply in response to a rise in price. …
2012
- http://economicsgceopastanswers.blogspot.com/p/elasticity.html
- QUOTE: In the diagram below, the price elasticity of supply is high at low levels of demand (e.g. D1 and D2) but when demand is high, elasticity of supply is much lower (e.g. D4 and D5) – the main reason would be that at peak periods, suppliers reach capacity limits and find it hard to increase output in he short run.
- QUOTE: In the diagram below, the price elasticity of supply is high at low levels of demand (e.g. D1 and D2) but when demand is high, elasticity of supply is much lower (e.g. D4 and D5) – the main reason would be that at peak periods, suppliers reach capacity limits and find it hard to increase output in he short run.
2005
- (Green et al., 2005) ⇒ Richard K. Green, Stephen Malpezzi, and Stephen K. Mayo. (2005). “Metropolitan-Specific Estimates of the Price Elasticity of Supply of Housing, and their Sources.” In: American Economic Review.
- QUOTE: Many reviews of housing economics (and most of the papers on the subject) have noted that, relative to many other aspects of market behavior, housing supply is under-studied. Surveys by Quigley (1979), Olsen (1987) and Smith, Rosen and Fallis (1988), to give but three examples, make this point. The market for research is in turn responding; for example see the recent special issue of the Journal of Real Estate Finance and Economics devoted to housing supply (Rosenthal, 1999), and especially the review by DiPasquale (1999). Despite these advances, the literature is best described as thin, especially relative to the acknowledged importance of the topic; and despite some recent advances there is no firm consensus on the nature of housing supply. A good example is the recent literature on the influence of the federal tax code on housing (Cappoza, Green and Hendershott (1996, 1999), Gravelle (1996), Holz-Eakin (1996)). CGH view housing as a good that is inelastically supplied, while Gravelle and Holz-Eakin view housing as an elastically supplied good. These studies highlight, first, that fundamental supply parameters underpin important policy issues, and second, that there is not yet consensus on these parameters.
One characteristic of housing supply that makes housing unusual is that the short-to-medium run supply curve for housing embeds a fundamental asymmetry, and can probably best be viewed as kinked. When housing demand falls, the market cannot easily adjust the supply of housing downward (because housing is so durable). On the other hand, absent constraints on land supply, the market should be able to largely absorb increases in demand via supply. Of course, it has been the case recently that the strong national market for new construction has led to material and labor shortages that have, in turn, driven up prices of materials and labor. That suggests that housing supply is not perfectly elastic in the face of increased demand, at least in the short run. Still, we would expect that in the absence of land-supply constraints, the speed of adjustment (in the DiPasquale-Wheaton (1994) sense) of markets to upward shifts in demand is faster than it is to downward shifts in demand.
An assumption of imperfect elasticity is supported by (for example) Blackley (1999), Kearl (1979), Schwab (1983), Topel and Rosen (1988) and Poterba (1991), who find that at the national level, the price elasticity of supply is between 1.5 and 4. In a paper that ties econometric modeling to urban theory, Mayer and Somerville (1999) on the national level find housing supply to be even last elastic than their predecessors. On the other hand, Muth (1960), Follain (1979), and Malpezzi and Maclennan (1996) find much higher elasticities, with point estimates as high as 20.
- QUOTE: Many reviews of housing economics (and most of the papers on the subject) have noted that, relative to many other aspects of market behavior, housing supply is under-studied. Surveys by Quigley (1979), Olsen (1987) and Smith, Rosen and Fallis (1988), to give but three examples, make this point. The market for research is in turn responding; for example see the recent special issue of the Journal of Real Estate Finance and Economics devoted to housing supply (Rosenthal, 1999), and especially the review by DiPasquale (1999). Despite these advances, the literature is best described as thin, especially relative to the acknowledged importance of the topic; and despite some recent advances there is no firm consensus on the nature of housing supply. A good example is the recent literature on the influence of the federal tax code on housing (Cappoza, Green and Hendershott (1996, 1999), Gravelle (1996), Holz-Eakin (1996)). CGH view housing as a good that is inelastically supplied, while Gravelle and Holz-Eakin view housing as an elastically supplied good. These studies highlight, first, that fundamental supply parameters underpin important policy issues, and second, that there is not yet consensus on these parameters.