Economics, 3rd Edition

Price elasticity of supply

=

(Q

2

− Q

1

)/([Q

2

+ Q

1

]/2)

(P

2

− P

1

)/([P

2

+ P

1

]/2)

The numerator is the percentage change in quantity supplied computed using the midpoint method, and 

the denominator is the percentage change in price computed using the midpoint method.

For example, suppose that an increase in the price of milk from 

€2.85 to €3.15 a litre raises the amount 

that dairy farmers produce from 90,000 to 110,000 litres per month. Using the midpoint method, we cal-

culate the percentage change in price as:

Percentage change in price

= (3.15 − 2.85)/3.00 × 100 = 10 per cent

Similarly, we calculate the percentage change in quantity supplied as:

Percentage change in quantity supplied

= (110,000 − 90,000)/100,000 × 100 = 20 per cent

In this case, the price elasticity of supply is:

Price elasticity of supply

=