Elasticity of Supply

Meaning

• A measure (in quantitative terms) of the way suppliers respond to a change in

price.
• A measure of the extent to which the quantity supplied of a good changes when
the price of the good changes.
• To determine the price elasticity of supply, the percentage change in the quantity
supplied is compared with the percentage change in price.
• It is calculated as:
Es = % Qs / % P
(or)
eS = ∆S/S * P/∆P
Types of Elasticity of Supply

1) Elastic supply (E s> 1)

• A product has elastic supply when a price change causes a significant change in
the quantity supplied.
• The percentage change in the quantity supplied exceeds the percentage change in
price.
• This would happen when a seller is quickly able to increase production if the
market price goes up.
• The supply curve would be flat.
2) Inelastic Supply (Es < 1)
• A price change causes very little change in the quantity supplied
• The percentage change in the quantity supplied is less than the percentage change
in price.
• This would happen when in spite of price change the seller is not in a position to
change the supply.
• The supply curve would be steep.
3) Unitary Elastic (Es =1)
• Refers to a situation when the proportionate change in the quantity supplied is
equal to the Proportionate change in the price of a product.
• The numerical value of unit elastic supply is equal to one (eS=1).
• Unitary elasticity of supply has no special economic significance.
4) Perfectly Elastic (Es =∞)
• Supply of a commodity is said to be perfectly elastic, when the supply changes to
any extent irrespective of any change in its price.
• In other words, An almost zero percentage change in price brings a very large
percentage change in the quantity supplied.
• It means that at a price, any quantity of the good can be supplied and at a slightly
lower price, the firm will not sell at all.
• It is purely an imaginary concept.
5) Perfectly Inelastic (Es=0)
• Supply for a commodity is perfectly inelastic, if supply remains same irrespective
of change in price of the commodity.
• The percentage change in the quantity supplied is zero when the price changes