The price elasticity of supply for peanuts over this price range is 20.
What is the price elasticity of supply?
- Price elasticity of supply measures the responsiveness to the supply of a good or service after changes in market prices. According to basic economic theory, when the price of good rises, the supply of the good increases. Conversely, when the price of a good decrease, the supply of that good decreases.
- Price Elasticity of Supply = % Change in Supply / % Change in Price
- The price Elasticity of Supply indicates how quickly producers change their level of output in response to price changes.
- According to economic theory, when prices rise, producers want to produce more in order to sell more at a higher price.
- If manufacturers are unable to keep up with increased demand.
Thus, Price Elasticity of Supply = % Change in Supply / % Change in Price, and one can easily understand the concept.
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