Price Elasticity of Supply

Definition: Price elasticity of the supply measures the degree of the responsiveness of quantity supplied to the change in price.

Types of Elasticity are as follows

a)      Perfectly Inelastic Supply (Es = 0)

Regardless of the cost level, the producer will provide the same quantity and therefore it can be shown by the vertical straight line.

b)      Perfectly Elastic SS (Es = ¥)

An infinite amount will be offered for the sale at a specific cost and hence it can be shown as the horizontal straight line.

c)      Relatively Elastic SS (1 < Es < ¥)

This is the situation whereby a change in cost leads to a more than proportionate change in the quantity supplied and it can be shown by a flat curve passing all the way through the vertical/price axis.

d)     Relatively Inelastic SS (0 < Es < 1)

This is the situation whereby any alteration in price leads to the less than proportionate change in the quantity supplied and it can be shown by the steep curve passing through horizontal (Qty) axis.

e)      Unitary Elastic SS (Es = 1)

In this particular situation, a change in cost will lead to proportionate which is same percentage change in the quantity supplied and therefore it can be shown by any straight line which is passing through the origin.

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