Elasticity of supply

ByMr. Swatanter SinghPGT (ECO.) KV Leh-Ladakh

Previous knowledge testing

• Define supply.• What is the relationship beween price

and supply ?• How do we calculate % change in a

variable?• What is the meaning of word elastic?• What is the meaning of word inelastic ?

Elasticity of supplyElasticity of supply

Price elasticity of supply Price elasticity of supply measures the change in supply of measures the change in supply of commodity due to change in its commodity due to change in its priceprice

Methods of measuring price elasticity of

supply

• Proportionate method or percentage method

• Geometric method

Proportionate method or percentage method

percentage change in quantity supplied

Es = -------------------------------------------- percentage change in price Q1-Q0 --------- x 100 Q0 Es = ------------------------ P1-P0 ---------- x 100 P0

Q/Q0

Es = ----------- P/P0

Q P Es = ------ x ---- P Q

Numerical Ques: Supply of a commodity increases from 20 units to 40

units when price rises by 25%.Calculate price elasticity of supply.

Soluion: percentage change in quantity supplied

Es = ---------------------------------------------------- percentage change in price 40 – 20 --------- x 100 20 Es = ------------------------ 25

20/20 x100 Es = ------------------- 25

Es = 4

Geometric Method

Geometrically ,elasticity of supply depends on the origin of supply curve.

Unitary Elastic ( Es = 1)

When supply curve starts from origin

O Quantity

Price

Es = 1

Elastic ( Es > 1)

When supply curve starts from Y axis

O Quantity

Price

Es > 1

Inelastic ( Es < 1)

When supply curve starts from X axis

O Quantity

Price

Es < 1

Perfectly Elastic ( Es = 1)

When supply curve is horizontal line parallel to X axis

O Quantiy

Price Es = 1

Perfectly Inelastic ( Es = 0)

When supply curve is vertical line parallel to Y axis

O Quantity

Price Es = 0

Factors affecting elasticity of supply

• Nature of input used• Dependence on natural factors• Risk factor• Nature of commodity• Technique of production• Time factor

• Define elasticity of supply. Define elasticity of supply. • What is the Es if supply curve making an angle of What is the Es if supply curve making an angle of

3030o o at the origin ? at the origin ?• Calculate Es when quantity supplied increase Calculate Es when quantity supplied increase

from 30 to 50 due to 20% rise in price.from 30 to 50 due to 20% rise in price.• What do you mean by elastic supply?What do you mean by elastic supply?• What are the factors affecting Es ?What are the factors affecting Es ?• What is the meaning of perfectly inelastic What is the meaning of perfectly inelastic

supply ?supply ?

Thanks for your kind Thanks for your kind attentionattention