Elasticity of Supply

ABU DHABI INDIAN SCHOOL
Department Of Economics
Grade 11
ELASTICITY OF SUPPLY
It is the ratio of percentage change in the quantity supplied of a commodity to a percentage

change in price. It is the extent to which supply responds to a change in price.
Es =%change in quantity supplied

%change in price
When supply reacts more to a change in price it is called elastic supply. When supply reacts less
to a change in price, it is called inelastic supply.
Factors influencing price elasticity of supply

1. Nature of inputs used: If the supplier or producer uses factor of production which are
common and easily available then supply of the commodity will be elastic and vice
versa.
2. Nature constraints: Goods like agricultural goods are influenced by nature; therefore
their supply is inelastic in nature.
3. Nature of commodity: Perishable goods have inelastic supply whereas durable goods
have elastic goods.
4. Techniques of production: If technique of production is modern, then supply of the
commodity will be elastic, if traditional method of production is used to produce a
commodity, supply will be inelastic.
5. Time factor: Supply is perfectly inelastic in a very short period of time whereas it is
relatively elastic in long period.
Types of price elasticity of supply

1. Unit elastic supply – When change in price brings about exact proportionate change in
quantity supplied, supply is unit elastic.( Es=1 )
In the above diagram SS is the supply curve. When price rises from OP to OP1 by 10%, supply
rises from OM to OM1 by exactly 10%.
2. Relatively inelastic supply – When change in price brings about less than proportionate
change in quantity supplied, supply is relatively inelastic. (Es<1).
In the above diagram SS is the supply curve. When price rises from OP to OP1 by 10%, quantity
supplied rises from OM to OM1 by 5%.
3. Relatively elastic supply - When change in price brings about more than proportionate
change in quantity supplied, supply is relatively elastic. (Es>1).
In the above diagram SS is the supply curve. When price rises from OP to OP1 by 10%, supply
rises from OM to OM1 by 20%.
A relatively inelastic supply curve will be steeper whereas a relatively elastic supply curve will
be flatter.
4. Perfectly inelastic supply – When change in price brings about no change in quantity
supplied, supply is perfectly inelastic. (Es = 0).
In the above diagram SS is the supply curve, which is vertical to the x axis. When price is OP
quantity supplied is OM, when price rises from OP to OP1 by 10%, supply remains the same at
OM.
5. Perfectly elastic supply – When supply is infinite at a given price, supply is perfectly elastic.
(Es = ∞).
In the above diagram when price is OP, quantity supplied is infinite i.e. OM, OM1, OM2 etc.
A perfectly inelastic supply curve is vertical to x axis, whereas a perfectly elastic supply curve
is horizontal to x axis.
Method of measuring price elasticity of supply (For reference only- not to be tested)
Percentage or Proportionate method – Under this method price elasticity of supply is

measured by the ratio of percentage change in quantity supplied to percentage change in price.
Es = %change in quantity supplied
%change in price
Es = P/Q x ∆Q/∆P
Where ∆Q = Change in quantity supplied i.e. Q1-Q
∆P = Change in price i.e. P1-P
P = Original price
Q = Original quantity supplied.
Example 1 A producer offers to sell 400 units of a commodity when its price is Rs 10 per unit. If
price reduces to Rs 5 per unit only 200 units are sold. Find price elasticity of supply.
Example 2 – At a price of Rs 8 per unit, the quantity supplied is 200 units, if price rises to Rs 10
per unit, Es = 1.5. Calculate quantity supplied at a new price.
Example 3 – Coefficient of elasticity of supply is 3. A seller supplies 20 units of the commodity

at a price of Rs 8 per unit. How much quantity of these commodities will the seller supply when
price rises by Rs 2 per unit?
Example 4 – Price elasticity of supply is 2.5, at Rs 5 per unit, quantity supplied is 100 units.
What would be the new price if new quantity supplied is 150 units?

Elasticity of Supply

Uploaded by

Copyright:

Available Formats

Elasticity of Supply

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Elasticity of Supply

Uploaded by

Copyright:

Available Formats

ABU DHABI INDIAN SCHOOL

It is the ratio of percentage change in the quantity supplied of a commodity to a percentage

Es =%change in quantity supplied

Factors influencing price elasticity of supply

Types of price elasticity of supply

Percentage or Proportionate method – Under this method price elasticity of supply is

Es = %change in quantity supplied

Where ∆Q = Change in quantity supplied i.e. Q1-Q

∆P = Change in price i.e. P1-P

Q = Original quantity supplied.

Example 3 – Coefficient of elasticity of supply is 3. A seller supplies 20 units of the commodity

You might also like