PES > 1: Supply is elastic. In this method, the elasticity of supply is measured at a particular point on the supply curve. As SS curve is extended, passes through the point of origin. This shows that S change in price is five rupees while the change in supply is 1,000. Since supply is usually increasing in price, the price elasticity of supply is usually positive. This tangent meets X axis at T point. 5, eS = 500/5 * 50/1000 = 0.5 (less than unit). According to this method, if the numerical value of elasticity of supply is more than one, it represents relatively elastic supply. If the price remains high for a longer period, the supply of products is increased. es < 1. It means, any straight line supply curve, which passes through the origin has unitary elastic supply (proved under geometric method), irrespective of the angle it makes with the origin. Perfectly Elastic Supply. Refers to the method in which elasticity of supply is measured at a particular point on the supply curve. Therefore, the supply of product X is perfectly inelastic (e = 0). Definition: When the proportionate change in the quantity supplied is equal to the proportionate change in the price of a product, the supply is unitary elastic. 50 to Rs. Refers to a condition when the proportionate change in the quantity supplied is less than proportionate change in the price of a product. In the context of supply, substitute goods are those to which factors of production can most easily be transferred. An organisation is required to estimate the elasticity of supply for making various business decisions under different situations, such as deciding the supply of products. E s >1 and the supply curve has an intercept on the Y-axis or a negative intercept on the X-axis. Example: The quantity supplied and the price of product B are given as follows: Draw a supply curve for the supply schedule of product B and find the type of elasticity of supply using the curve. Therefore, the supply of product X is perfectly elastic ( es =∞). Contrarily, if there is no change or negligible change in supply or supply pays no response, it is elastic.” It can be calculated by dividing the percentage change in the quantity supplied with percentage change in the price of a product. Definition: When a percentage change in the quantity supplied is less than the percentage change in the price of a product, it is called relatively inelastic supply. Proportionate change in the price of a product. 50 = Rs. The quantity supplied and the price of product R is shown in Table-13: Prepare a supply curve for the supply schedule of product R and determine the type of elasticity of supply demonstrated by the supply curve. Let us take the simple example of pizza. Five Types of Price Elasticity of Supply Perfectly Inelastic Supply. Similar to elasticity of demand, elasticity of supply also does not remain same. Apart from determining the elasticity or inelasticity of supply, an organization needs to estimate the numerical value of elasticity of supply for making various business decisions. Less Elastic Supply For a less elastic supply, the percentage change in quantity supplied is smaller than the percentage change in price. The elasticity of supply is influenced by a number of factors. Infinitely Elastic Supply: When the amount supplied at the ruling price is infinite, we say the supply is … 60 at the same supply rate. Perfectly Elastic Demand: When a small change in price of a product causes a major change in its … Supply is perfectly inelastic. In practical implications, an organization needs to estimate the degree of change in the quantity supplied of a product with respect to change in the price of the product. Let us understand the concept of perfectly elastic demand with the help of an example. Share Your PDF File “The supply of a commodity is said to be elastic when as a result of a charge in price, the supply changes sufficiently as a quick response. The price elasticity of supply is defined as the percentage change in quantity supplied divided by the percentage change in the price of a good. In simple words, if the price of a product increases, the quantity supplied for the product also increases. 2. 50, the quantity supplied is 30,000 Kgs. According to Prof. Thomas, “The supply of a commodity is said to be elastic when as a result of a change in price, the supply changes sufficiently as a quick response. Production techniques used by organisations also have a great influence on the supply of their products. Let us understand these three conditions with the help of the following diagrams: In Figure, SS is the supply curve and at point P the elasticity of the supply is measured. The supply curve for product P is shown in Figure-16: In Figure-16, when the price of product P is Rs. In such a case, the numerical value of elasticity of supply would be infinite (es =∞). An unitary elasticity supply has an elasticity of 1 Relatively inelastic supply Price Elasticity of Supply Formula. Solved Example on Elasticity of Supply. A relatively elastic supply has an elasticity bigger than 1 Supply with unitary elasticity. This shows that the proportionate change in quantity supplied is equal to the change in the price of product Y. In other words, the quantity supplied remains constant at the change in price when supply is perfectly inelastic. Relatively Elastic Supply. 50, the quantity supplied is 30,000 Kgs. P = 4500 ΔP = 1000 (a fall in price; 5500– 4500 = 1000) S = 450 units ΔS = 150 (600 – 450), By substituting these values in the above formula, we get: es = 150/1000 x 4500/450 = 1.5. The symbolic representation of elasticity of supply is as follows: Change in quantity supplied (∆S) is the difference between the new quantity supplied (S1) and original quantity supplied(S). For example, if an organization has a large scale production of soaps, then an increase in the price of soaps would increase the supply of soaps without any time lag. In such a case, the numerical value of elasticity of supply is less than one (eS<1). Types or degrees of price elasticity of demand. Unit Elastic Supply. Let us understand the concept of perfectly inelastic supply with the help of an example. Perfectly elastic supply. In other words, the proportionate change in quantity supplied is less than the change in the price of product B. In other words, the proportionate change in quantity supplied is more than the proportionate change in the price of product P. Therefore, the supply of product P is highly elastic (eS>1). Therefore, es > 1, implying that the supply is highly elastic. By seeing Figure, it is apparent that TB>OB. Perfectly Elastic Demand (E P = ∞). Let us understand the estimation of elasticity of supply on the demand curve using the point method. The cross elasticity of supply measures a proportional change in the quantity supplied in relation to the proportional change in the price. Relatively Elastic Supply. This is because it is influenced by a number of factors. Relatively Inelastic Supply. It can be calculated by the following formula: Similarly, change in price is the difference between the new price (P1) and original price (P). However, this situation is imaginary as there can be no product whose supply could be perfectly inelastic. There are 5 types of elasticity of demand: 1. Example: The quantity supplied and the price of product Z are given below: Solution: The supply curve for product Z is shown in Figure. First. Therefore, the supply of product Z is relatively inelastic (eS<1). In Figure, when the price of product Z is 50, the quantity supplied is 30,000 kgs. If the supply is a continuous function, this can be rewriten as: e s = (dQ/dP)/(Q /P ) Cross Elasticity of Supply. 51, supply reaches to 31,000. The most popular elasticity of demand is the price elasticity of demand. However, the price changes from Rs. The elasticity of supply cannot be the same under all circumstances. Refers to the level of technology that helps in determining the elasticity of supply. Following are different types of elasticity of supply: Refers to a situation when the quantity supplied completely increases or decreases with respect to proportionate change in the price of a product. Significant determinants include: Complexity of production: Much depends on the complexity of the production process. If the price remains high for a longer period, only then suppliers prefer to increase the supply of product. 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