ELASTICITY OF SUPPLY

ELASTICITY OF SUPPLY 

 The elasticity of supply establishes a quantitative relationship between the supply of a commodity and it’s price. Hence, we can express the numeral change in supply with the change in the price of a commodity using the concept of elasticity. Note that elasticity can also be calculated with respect to the other determinants of supply. 

However, the major factor controlling the supply of a commodity is its price. Therefore, we generally talk about the price elasticity of supply. The price elasticity of supply is the ratio of the percentage change in the price to the percentage change in quantity supplied of a commodity. Es       =    [q/q)×100] ÷ [(p/p)×100] = (q/q) ÷ (p/p) q = The change in quantity supplied q = The quantity supplied p = The change in price p = The price 

Types of Price Elasticity of Supply 

1. Perfectly Inelastic Supply : A service or commodity has a perfectly inelastic supply if a given quantity of it can be supplied whatever might be the price. The elasticity of supply for such a service or commodity is zero. A perfectly inelastic supply curve is a straight line parallel to the Y-axis. This is representative of the fact that the supply remains the same irrespective of the price. The supply of exclusive items, like the painting of Mona Lisa, falls into this category. Whatever might be the price on offer, there is no way we can increase its supply. 

(PES = 0), The Quantity Supplied doesn’t change as the price changes. 

                             Source: Intelligent Economist 

2. Relatively Less-Elastic Supply : When the change in supply is relatively less when compared to the change in price, we say that the commodity has a relatively-less elastic supply. In such a case, the price elasticity of supply assumes a value less than 1. 

(0 < PES < 1), Quantity Supplied changes by a lower percentage than a percentage change in price. 

                                Source: Intelligent Economist 

3. Relatively Greater-Elastic Supply : When the change in supply is relatively more when compared to the change in price, we say that the commodity has a relatively greater-elastic supply. In such a case, the price elasticity of supply assumes a value greater than 1. (1 < PES < 8), The Quantity Supplied changes by a larger percentage than the percentage change in price. 

                             Source: Intelligent Economist 

4. Unitary Elastic Supply : For a commodity with a unit elasticity of supply, the change in quantity supplied of a commodity is exactly equal to the change in its price. In other words, the change in both price and supply of the commodity are proportionately equal to each other. To point out, the elasticity of supply in such a case is equal to one. Further, a unitary elastic supply curve passes through the origin. 

(PES = 1), Quantity Supplied changes by the same percentage as the change in price. 

                            Source: Intelligent Economist 

5. Perfectly Elastic supply : A commodity with a perfectly elastic supply has an infinite elasticity. In such a case the supply becomes zero with even a slight fall in the price and becomes infinite with a slight rise in price. This is indicative of the fact that the suppliers of such a commodity are willing to supply any quantity of the commodity at a higher price. A perfectly elastic supply curve is a straight line parallel to the X-axis. (PES =   ), Suppliers will be willing and able to supply any amount at a given price but none at a different price. 

            Source: Intelligent Economist 

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