Chapter No 5 Elas of Supply

8/4/2019 Chapter No 5 Elas of Supply

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Chapter # 05

Elasticity ofsupply.


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Elasticity of supply.

Meaning. Just like demand, supply can also be elastic orinelastic. Law of supply represents a qualitative relationshipbetween price and supply .it represents a positive relationshipbetween price and supply, it does not show quantitative

relationship i.e. how much quantity supply changes by one unitchange in price. elasticity of supply makes us able to know howmuch change occur in quantity supply due to change in price.elasticity of supply represents the responsiveness of quantitysupplied to change in price. The


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Elasticity of supply

The formula for the price elasticity of supply isthe percentage change in the quantity supplied ofa good to a percentage change in the price of

that good, mathematically it can be written as

Es = % in qs

% in ps

Es = qs pp q


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Degrees of supply elasticity.

There are five degrees of supply elasticity.These are given as under.

1. Perfectly elastic supply.

2. Perfectly inelastic supply.

3. More/ high elastic supply.

4. Less elastic supply.

5. Unitary elastic supply.


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Degrees of elasticity of supply

Perfectly elastic supply:


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Perfectly elastic supply.

Price Qs

20 250

20.02 30020.04 350

Y

X

30

20

10

0200 250 300 350

a b cP

Qs


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Perfectly inelastic Supply

Perfectly inelastic supply : a supply is

said to be perfectly inelastic if quantitysupply of a product remaining

fixed/unchanged whatever the price is ,

there is increase or decrease in price ofgood but quantity supply remains fixed.In this case supply cure is vertical.


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Perfectly inelastic supply.

Price Qs

100 40

110 40

120 40

Y

X

130

120

110

100

0

10 20 30 40 50

a

b

c

P

Qs

Here the Qs is constant at anextending price which shows that

the supply of quantity is perfectlyinelastic whatever the changing

price is there is no change in Qs.


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More/high elastic supply

supply is said to be more elastic if

percentage change in quantitysupplied is greater than percentage

change in price. in this case supply

curve is flatter


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More/ high elastic supply.

Price Qs

50 30

55 45

Y

X

55504540

353025

10 15 20 25 30 35 40 45 500

a

b

P

Qs

When a small percentage changein price brings about a big

percentage change in quantitysupplied, the elasticity of quantity

supplied is said to be more orhigh elastic.


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Less elastic supply

supply is said to be less elastic if

percentage change in quantity

supplied is less than percentagechange in price. in this case supply

curve is steeper.


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Less elastic supply.

Price Qs

50 30

80 35 Y

X

80706050

40302010

10 15 20 25 30 35 400

a

b

P

Qs

Here a big percentage changein price brought about a very

small change in Qs whichindicate less elastic supply of a

commodity.


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Supply is said to be unitary supply if

percentage change in price is equal topercentage change in quantity suppliedthen elasticity of supply is said to beunitary supply. in this case supply curve isnormal.

Unitary supply.


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Unitary elastic supply.

Price Qs

50 40

100 80Y

X

100

50

0

20 40 60 80 100

a

b

P

Qs

When cent percent change

in price leads to exactly thatmuch change in Qs, the

elasticity of supply then saidto be unitary elastic supply.

Here unitary denote tohundred percent change in

Qs to change in price.


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Measurement of supply elasticity.

Like demand we can find elasticity of supplythrough the given formula, if the elasticity isfound less than 1 the supply is said to be lesselastic and when the elasticity becomes greaterthan 1, then the elasticity of supply is known asmore or high elastic but when it is exactly equalto 1 it means that supply is unitary elastic whichshows that hundred percent change in quantitysupplied is equal to hundred percent change in

price.


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Unitary supply

price Quantity supply

1 10

2 20

Es = qs pp q

Es = -10 X 1 = 1

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More/high elastic supply

price Quantity supplied

1 10

2 25

Es = qs pp q

Es = -15 X 1 = 2.5

-1 10


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Less elastic supply

price Quantity supplied1 10

2 15

Es = qs pp q

Es = - 5 X 1 = .5

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Chapter No 5 Elas of Supply

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