Advertisement

Elasticity of supply

Visits

Elasticity of supply

     According to Professor Thomas,” the study of a commodity is said to be elastic when as a result of a change in price, the supply changes sufficiently as a quick response. Contrarily, if there is no change or negligible change in supply or supply pays no response it is elastic.”

     It can be calculated by dividing the percentage change in the quantity supplied by the percentage change in the price of the product.

Symbolically,
Elasticity of supply


Where,
∆s= change in quantity supplied
∆p= change in price
P= initial change in price
S= initial change in supply

Types/degrees of elasticity of supply

  1. Perfectly elastic supply (Es=∞)

It refers to a situation when the quantity supplied completely increases or decreases with respect to proportionate change in the price of the product. This situation is imaginary as there is no product whose supply is perfectly elastic. It can be explained by the help of the following figure.
Perfectly elastic supply

In the above figure price and quantity supplied are shown along y-axis and x-axis respectively. When the change in price is in negligible amount then the quantity supplied changes in a heavy amount. PS is the supply curve which is perfectly elastic, i.e. Es=∞ .
  1. Perfectly inelastic supply (Es=0)

When a certain change in price does not affect the quantity supplied of a commodity then the supply curve is said to be perfectly inelastic.
Perfectly elastic supply
                                 
In the above figure, Q1S is perfectly inelastic supply. It is parallel to the y-axis. It shows that at price OP1, OP2, OP3 the quantity supplied remains unchanged, i.e OQ1.
  1. Unitary elastic supply (Es=1)

If the percentage change in supply is equal to the percentage change in the price of goods, then the supply is known as unitary elastic supply. E.g; when price increases by 10% then supply also increases by 10%.
Unitary elastic supply

In the above figure price and quantity supplied are shown along y-axis and x-axis respectively. It shows that the ratio of change in quantity supplied is equal to the ratio of change in price. SS is supply curve which is unitary elastic. I.e. Es=1
  1. Relatively elastic supply (Es>1)

When the percentage change in quantity supplied is greater than the percentage change in price, the condition is known as a relatively elastic supply. It can be explained by the help of the following figure:
Relatively elastic supply

In the above figure price and quantity supplied are shown along y-axis and x-axis respectively. It shows that the ratio of change in quantity supplied is greater than the ratio of change in price. SS is supply curve which is relatively elastic.Es>1
  1. Relatively inelastic supply (Es<1)

When the percentage change in quantity supplied is less than the percentage change in price, the condition is known as relatively inelastic supply.

It can be explained by the help of the following figure:
Relatively inelastic supply

In the above figure price and quantity supplied are shown along y-axis and x-axis respectively. It shows that the ratio of change in price is greater than the ratio of change in quantity. SS is supply curve which is relatively inelastic I.e; Es<1

Post a Comment

0 Comments