Elasticity of Supply – Definition, Formula, Degree of Elasticity of Supply

Introduction

As we earlier studies about what is law of supply so on that we study when the price increase of a particular good then the quantity supply also increase that was the point which is covered in the law of supply. Now it’s time to cover what is elasticity of the supply?

In simple terms, Elasticity of supply explains the quantitative change in the amount of supply due to the given change in the price of the commodity that is called the elasticity of supply.

It is the ratio between the supply and the price that is called elasticity of supply. Therefore, it is the measure of degree of responsiveness to a change in the supply due to the change in the price.

Definitions of Elasticity of Supply

“A degree of responsiveness of a supply of a commodity to a change in its price”

Samuelsson

“Elasticity of supply is the ratio of percentage change in quantity supplied over the percentage change in price.”

Lipsey

“Elasticity of supply is defined as the percentage change in quantity supplied divided by percentage change in price.”

Prof. Bilas

Formula of Price Elasticity of Supply

∆Q =change in the demand. (difference in demand)

∆P=change in the price. (difference in price)

P1=initial price. (first price/ old price)

Q1=initial demand. (first demand/ old demand)

Degree of Elasticity in Supply

1. Perfectly elasticity supply (ES = ∞)
2. Perfectly inelasticity supply (ES = 0)
3. Unitary elasticity supply (ES = 1)
4. Elasticity supply (ES > 1)
5. Inelasticity supply (ES < 1)

Perfectly Elasticity of Supply

Due to a very small change in the price of a supply of commodity change infinitely that is called perfect elasticity supply. The degree of elasticity of supply will be (ES=∞).

Perfectly Inelasticity Supply

When the supply of commodity doesn’t change sue to change in the price that is called perfectly inelastic supply. The degree of elasticity of the supply will be (ES=0).

Unitary Elastic Supply

There is an equivalent change in the supply to an equivalent change in the price that refers to the unitary elasticity of supply. The degree of elasticity of the supply will be (ES=1).

Elasticity supply

When supply changes to greater than to a small change on the price is known as elastic supply where (ES>1).

Inelastic supply

Where there is a smaller change in the supply to a greater change in price the result would be less than 1 is called inelastic supply.