Elasticity of Supply

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The Elasticity of Supply Definition

The price elasticity of supply is a measure of the degree of responsiveness of the quantity supplied to the change in the price of a given commodity. It is an important parameter in determining how the supply of a particular product is affected by fluctuations in its market price. It also gives an idea about the profit that could be made by selling that product at its price difference. In this article, we will discuss the elasticity of supply formula, different types of elasticity of supply, the supply curve characteristics and many more. 

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Price Elasticity of Supply Formula

After having understood the elasticity of supply definition in economics, we now move to the elasticity of supply formula which is based on its definition.

\[E_{s}\] = (%∆ Q) / (%∆ P)

Here, ES denotes the elasticity of supply which is equal to the percentage change in quantity supplied divided by the percentage change in the price of the commodity. 


5 Types of Elasticity of Supply

Based on the above price elasticity of supply formula, there are 5 types of elasticity of supply:

  1. Perfectly Elastic Supply: A commodity becomes perfectly elastic when its elasticity of supply is infinite. This means that even for a slight increase in price, the supply becomes infinite. For a perfectly elastic supply, the percentage change in the price is zero for any change in the quantity supplied.

  2. More than Unit Elastic Supply: When the percentage change in the supply is greater than the percentage change in price, then the commodity has the price elasticity of supply greater than 1.

  3. Unit Elastic Supply: A product is said to have a unit elastic supply when the change in its quantity supplied is proportionate or equal to the change in its price. The elasticity of supply, in this case, is equal to 1.

  4. Less than Unit Elastic Supply: When the change in the supply of a commodity is lesser as compared to the change in its price, we can say that it has a relatively less elastic supply. In such a case, the price elasticity of supply is less than 1.

  5. Perfectly Inelastic Supply: Product supply is said to be perfectly inelastic when the percentage change in the quantity supplied is zero irrespective of the change in its price. This type of price elasticity of supply applies to exclusive items. For example, a designer gown styled by a famous personality.

The point to be noted is that the elasticity of supply is always a positive number. This is because the law of supply states that the quantity supplied is always directly proportional to the change in the price of a particular commodity. This means that the supply of a product either increases or remains the same with the increase in its market price. 


The Elasticity of Supply Curves

We have previously inferred the elasticity of supply definition, the elasticity of supply formula and its various types. Let us now have a look at how these different values of the price elasticity of supply formula are plotted on the graph. 

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Keeping the quantity supplied on the X-axis and the price of the commodity on the Y-axis, we can draw certain conclusions from the different values of elasticity of supply formula. 

  1. When ES = infinite (Perfectly elastic supply), the curve (SS) is a straight line parallel to the X-axis. 

  2. When ES > 1, a flatter curve (S2S2) is obtained which when extended intersects the Y-axis.

  3. When ES < 1, it results in a steeper curve (S3S3), which when extended crosses the X-axis.

  4. When ES = 1, the curve (S4S4) comes out to be a straight line that passes through the origin at an angle of 45 degrees. 

  5. When ES = 0 (Perfectly inelastic supply), the curve (S1S1) obtained is parallel to the Y-axis.  

This graph shows us the relationship between the different types of elasticity of supply and helps in understanding the elasticity of supply definition better. 


Did You Know?

Alfred Marshall, a British economist, gave the concept of elasticity of demand and supply in his book “Principles of Economics” in 1890. He was the one to define elasticity of supply and deduced the price elasticity of supply formula. He also explained that the prices of some goods such as medications, salt, gasoline, etc. can increase without reducing their demand in the market, which means that their prices are inelastic. This is because these goods are crucial to the everyday lives of the consumers.

FAQ (Frequently Asked Questions)

Q1. What is the Relation Between Cost and Technique of Production and the Price Elasticity of Supply?

Ans: According to the elasticity of supply definition, the supply of a product depends upon its market price. So, if the price of that commodity is less than its cost of production, its supply will be less as the supplier will not earn enough profit by selling that product. However, when its value in the market increases, the supplier will try to enhance its production. That’s when the technique of production will come into play. If a firm has advanced machinery for the production of that commodity, it will be able to produce it in large quantities in a shorter time. On the other hand, if a firm uses outdated technology for manufacturing, it won’t be able to increase its production much within a limited time frame. So, the lesser the cost of production and the better the technique, the more is the supply elasticity.

Q2. How Does the Nature of a Commodity Affect the Price Elasticity of Supply Formula?

Ans: We have seen in the elasticity of supply formula that when the change in quantity supplied is zero for any change in the price, the elasticity of supply comes out to be infinite, i.e. perfectly elastic. Now, keeping in mind the elasticity of supply definition, we can say that the durable commodities (like plastic bottles) will have a more elastic supply. On the other hand, perishable goods (like vegetables) will have an inelastic supply because unlike the durable goods, they can’t be stored for long and hence, have to be sold immediately after their production irrespective of the price in the market.