Elasticity of Supply

Price Elasticity of Supply

Elasticity of Supply (Es) Determinants of Price Elasticity of Supply

Price Elasticity of Supply

A measure of the extent to which the quantity supplied of a good changes when the price of the good changes, and all other influences on sellers plans remain the same (cateris paribus)

Price Elasticity of Supply (Es) = % Change in Qs % Change in Price

Computing Price Elasticity of Supply

Percentage change in quantity supplied Percentage change in price If Price Elasticity of Supply > 1, Supply is elastic If Price Elasticity of Supply = 1, Supply is unit elastic If price elasticity of supply< 1, Supply is inelastic

Price Elasticity of Supply

Perfectly Elastic Supply When the quantity supplied changes by a very large percentage in response to an almost zero increase in price Elastic Supply When the % change in the quantity supplied > the % change in the price Unit Elastic Supply When the % change in the quantity supplied = the % change in price Inelastic Supply When the % change in the quantity supplied is < the % change in price Perfectly Inelastic Supply When the quantity supplied remains the same as the price changes

Perfectly Elastic Supply

Curve

Perfectly Inelastic Supply Curve

S

Quantity

Quantity

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18-24

Influences of Price Elasticity of Supply

Storage Possibilities The better the storability, the more elastic is the price elasticity of supply Think of farm produce vs fertilizer as an example

Factors Determining Elasticity of Supply

Nature of Commodity Level of Technology Time Element Scale of Production Size of the firm and the number of Products Produced Natural factors Mobility of Factors

Price Elasticity of Supply

Price elasticity of supply is a measure of the responsiveness in quantity supplied to changes in price.

percentage change in quantity supplied Es percentage change in price

Computing Price Elasticity of Supply

percentage change in quantity supplied Es percentage change in price
120 100 20 % Qs 20% 100 100
$2.20 $2.00 $0.20 % P 10% $2.00 $2.00

% Qs 20% Es 2.0 % P 10%

Measurement of Elasticity of Supply

The Ratio Method The Point Method

Activity
The price of a commodity changes from Rs. 40 to Rs. 45 per unit,the total quantity supplied of the commodity by the sellers is increased from 1,000 units to 1200 units then calculate the elasticity of Supply? You want to manufacture a commodity,the supply of which is completely under your control.Also the supply of which should be elastic,in order to avoid huge losses.Which factor would you want to be in your stride and why?

 Supply Elasticity:Responsiveness of Quantity Supplied to changes in Price