Price Elasticity of Supply

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The Elasticity of Demand and Supply

The Elasticity of Supply is one of the most important chapters of Class 11 Economics. The following article is perfectly designed to portray the price elasticity of supply formula and several other things in light of the law of supply. The elasticity of demand and supply is nothing but the relationship between the price of a particular commodity and the quantity demanded or supplied of that particular commodity. There are various types of markets in the economy. Surprisingly, the elasticity of supply holds true for every type of market.


Define Elasticity of Supply

The quantitative correlation between the price of a commodity and quantity supplied of that commodity is known as the elasticity of supply. The above elasticity of supply definition stands perfect for all types of markets. Therefore, the mathematical alteration in supply with the change in the price can be derived by the concept of elasticity of supply. There are also few other determinants of elasticity of supply. 

The most significant factor controlling the supply of a particular good is the price of the good. Mathematically, the value can be derived using the elasticity of supply formula. The elasticity of supply formula is as follows:

Es= [(∆q/q)X 100] ÷ [(∆p/p) X 100]= (∆q/q) ÷ (∆p/p)

Here, ∆q stands for the change in quantity supplied

           q Stands for the quantity supplied

           ∆p stands for the change in price

           p stands for the price  

Apart from the above-mentioned technique to calculate the elasticity of supply, there are another two methods to derive elasticity of supply formula. Those two formulas are based on the supply curve. One is point elasticity in which elasticity can be calculated at a specific point of time and another is arc elasticity in which the same is calculated between two prices.

Point elasticity of supply formula: Es= (dq/dp) x (p/q)

Arc-elasticity of supply formula: Es= [(q1-q2)/(q1+q2)] x [(p1+p2)/p1-p2)]


Various Types of Price Elasticity of Supply in a Single Graph

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1. Perfectly Elastic Supply:

If there is infinite elasticity, then it is considered a perfectly elastic supply. In this scenario, with a minor fall in the price level, the supply will become zero and with a minor rise in the price, the supply will become infinite. The perfectly elastic supply example is that in such a market the suppliers desire to supply any quantity of the commodity if there is a higher level of price. A perfectly elastic supply curve is depicted as a straight line which is parallel to X-axis. 


2. Unit Elastic Supply:

If the change amount supplied is exactly equal to the change in its price, then it is termed as unit elastic supply or unitary elastic supply. In the above-mentioned scenario, the price elasticity of supply is equal to 1.


3. Relatively Greater-Elastic supply:

Relatively greater elastic supply occurs when the change in supply is relatively greater as compared to the change in price. In this case, the value of price elasticity of supply is greater than 1.


4. Relatively Less-Elastic supply:

Relatively Less Elastic supply occurs when the change in supply is relatively lesser as compared to the change in price. In this case, the value of price elasticity of supply is less than 1.


5. Perfectly Inelastic Supply

A service or commodity is termed as perfectly inelastic when a certain quantity of the said commodity can be supplied irrespective of the price. The value of the price elasticity of supply is zero.


Factors Affecting Elasticity of Supply

The factors affecting the price elasticity of supply are as follows:

  • The character of the industry

  • Resource constraints

  • Risk factor

  • Nature of the commodity

  • Definition of the good

  • Timescale

  • Cost of attracting resources

  • Price level

  • Mobility of factor

Determinants of Elasticity of Supply

The determinants of elasticity of supply are as follows:

  1. Number of producers

  2. Spare capacity

  3. Effortlessness of switching

  4. Ease of storage

  5. Length of the period of production

  6. The time frame of training

  7. Mobility of factors

  8. Reaction of costs


Did You Know?

  • Price elasticity of supply depends upon the tenure of the production. This means it is different in the long run and the short run.

  • Availability of raw materials is one of the important factors affecting the elasticity of supply.

  • The elasticity of demand and supply is the backbone of microeconomics. 

  • A perfectly elastic supply curve is horizontal to the axis.

FAQ (Frequently Asked Questions)

1. Give a Perfect Price Elasticity of Supply Example.

Perfectly price elastic supply is not so usual in the modern market scenario. Let us say someone makes some cakes and the cost of the cakes including all the ingredients is Rs. 10 per piece. If he/she sells all the cakes at Rs. 10/- per piece then it is an example of perfectly elastic supply. In this case, if the cost of the cake exceeds Rs. 10/- per cake, then there will be an infinite quantity of supply. Perfectly elastic supply is very much unusual in the present-day market.  The value of the elasticity supply is based on the price.

2. What is the Tax Burden in Perfectly Elastic Supply?

Tax incidence or tax burden is the consequence of a particular tax on the economic welfare distribution. The burden of tax is also reflected in the perfectly elastic supply curve. The elasticity of supply is one of the determinants in estimating the tax burden on a particular individual. The burden of the tax will increase over the consumers if the supply curve is flatter. If the supply curve remains steeper, then more tax will have to be borne by the producers.