Price Elasticity of Supply

The price elasticity of supply measures the responsiveness of the quantity supplied of a good to a change in its price. It helps us understand how much the quantity supplied changes when there is a change in price. The formula for price elasticity of supply is as follows:

Price Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)

In this case, the price of the good has increased from Rs. 20 to Rs. 30. Let's assume that the quantity supplied has increased by 20 percent in response to this price change. To calculate the price elasticity of supply, we need to determine the percentage change in quantity supplied and the percentage change in price.

Percentage Change in Quantity Supplied
To calculate the percentage change in quantity supplied, we use the following formula:

Percentage Change in Quantity Supplied = (New Quantity Supplied - Original Quantity Supplied) / Original Quantity Supplied * 100

In this case, the original quantity supplied is not given, so we cannot calculate the exact percentage change. However, let's assume that the original quantity supplied was 100 units. The new quantity supplied would then be 120 units (20% more than the original quantity). Using this information, we can calculate the percentage change in quantity supplied as follows:

Percentage Change in Quantity Supplied = (120 - 100) / 100 * 100 = 20%

Percentage Change in Price
The percentage change in price is calculated using a similar formula:

Percentage Change in Price = (New Price - Original Price) / Original Price * 100

In this case, the original price is Rs. 20 and the new price is Rs. 30. Using these values, we can calculate the percentage change in price as follows:

Percentage Change in Price = (30 - 20) / 20 * 100 = 50%

Calculating Price Elasticity of Supply
Now that we have the percentage change in quantity supplied (20%) and the percentage change in price (50%), we can calculate the price elasticity of supply using the formula mentioned earlier:

Price Elasticity of Supply = 20% / 50% = 0.4

Interpreting Price Elasticity of Supply
The price elasticity of supply is 0.4, which means that the quantity supplied is relatively inelastic with respect to price. This indicates that a 50% increase in price results in a 20% increase in quantity supplied. In other words, the quantity supplied is not very responsive to changes in price.

Implications
- The producer is able to increase the quantity supplied by 20% in response to a 50% increase in price. This suggests that the producer has some flexibility in adjusting their output in response to changes in price.
- The relatively inelastic supply suggests that the producer may face challenges in quickly and significantly increasing the quantity supplied in response to price changes. This could be due to factors such as limited production capacity or constraints in the availability of resources.
- The producer may have some market power, as they are able to increase the price of the good without experiencing a significant decrease in quantity supplied. This could indicate that the good has relatively few substitutes or that the producer has a unique position in the market.

Overall, the price elasticity of supply provides insights into how the quantity supplied of a