The COVID-19 pandemic is giving us data that enables us to calculate the price elasticity of supply of face masks. Demand has increased, the price has risen and the quantity supplied has increased.
How has the price changed?
In the earliest months of 2020, the price for a box of 50 face masks was $10. As of March 2020, that price was $55 a box.
How has the quantity supplied changed?
Before the COVID-19 pandemic, China contributed half of the world’s production of face masks. Altogether, the global quantity supplied was 20 million face masks per day. Production has since ramped up to 116 million masks per day in China. If we assume that the rest of the world has responded with the same proportional increase, global quantity supplied is now 232 million masks per day.
What is the price elasticity of supply?
The price elasticity of supply measures the responsiveness of the quantity supplied to a change in the price of a good when all other influences on selling plans remain the same. It is calculated by finding the ratio of the percentage change in quantity supplied and the percentage change in the price.
Global quantity supplied increased from 20 million face masks a day to 232 million face masks a day. The average quantity supplied is 126 million face masks a day. Using the midpoint method, the percentage change in quantity supplied is
The price of a box of face masks increased from $10 a box to $55 a box. The average price is $32.50 a box. Using the midpoint method, the percentage change in price is
Now we can determine the price elasticity of supply of face masks.
Because the price elasticity of supply is greater than 1, we say that the supply of face masks is elastic.
Is this a long-run value?
The elasticity we calculated is a short-run supply response. The linked news article reports that 2,500 companies in China have started making face masks, and people are also making their own masks. It is likely that the supply of face masks is perfectly elastic in the long run—in fact, the international mass producer 3M has already committed to doubling production without changing its price. This response suggests that the long-run price elasticity of supply is infinity.
Let’s look at a graph of the supply of face masks.
Now take a short quiz to check that you understand what you just read.
Multiple Choice Test – Elasticity of Face Masks