Question

Write short note on the following:

Percentage method.

Answer 1

Under the percentage method, the price elasticity of supply is given by the ratio of percentage change in the quantity supplied and percentage change in the price of a commodity.
Algebraically, it can be expressed as:

`Es = "Percentage Change in Quantity Supplied"/"percentage Change in Price"`

= `(+)((DeltaQ)/Q_1 xx 100)/((DeltaP)/P_1 xx 100)`

= `(+) (DeltaQ)/Q_1 xx P_1 /(DeltaP)`

= `(+) (DeltaQ)/(DeltaP) xx P_1 /(Q_1)`

Where:

ΔQ represents change in the quantity supplied i.e. (Q₂−Q₁)
ΔP represents change in the price i.e. (P₂−P₁)
P₁ represents the initial price
P₂ represents the final price
Q₁ represents the initial quantity supplied
Q₂ represents the final quantity supplied