Introductory Economics

Elasticity of supply

Elasticity of supply:

• Extension or contraction in supply takes place as result of changes in the price. This extension or contraction of supply caused by price changes is called elasticity of supply.

Elasticity of supply = % change in quantity supplied / % change in price.

Degrees of elasticity of supply:

• The elasticity of supply is equal to zero, when there is no change in supply as a result of change in price. The supply curve is perpendicular or vertical to Y-axis as shown below.

• The elasticity of supply is more than one, when with a small change in price, there is considerable or more than proportionate change in supply. It is called highly elastic supply.

• The elasticity of supply is equal to one, when there is proportionate change in supply as a result of change in price. . It is called elastic supply.

 

• The elasticity of supply is less than one, when with the considerable change in price, there is little or less than proportionate change in supply.

 

• The elasticity of supply is infinite or perfectly elastic, when any amount or quantity of a commodity can be supplied at the same price. Under these conditions supply curve is horizontal to X-axis.