PRESENTATION

ELASTICITY
OF
SUPPLY
Definition Of Price Elasticity Of supply

• The change in the quantity

supplied of a product due to a
change in its price is known as
Price elasticity of supply.
 Kinds Of Price Elasticity Of supply

1) Perfectly elastic supply

2) Relatively elastic supply
3) Elasticity of supply equal to utility
4) Relatively inelastic supply
5) Perfectly inelastic supply
Let Us See Some Views On Them
 Perfectly elastic supply
y
When the supply
Perfectly elastic
P supply curve for a product
R changes –
I
S
increases or
S
C decreases even
E when there is no
change in price,
it is known as
perfect elastic
0 x
supply.
 Relatively elastic supply
y
When the
P Relatively elastic supply proportionate
curve
R change in
I S supply is more
C
than the
E
S
proportionate
changes in
price, it is
0 x
known as
supply
relatively elastic
supply.
Elasticity of supply equal to utility

When the
y
proportionate
P S
change in supply
R
is equal to
I Elasticity of
supply equal proportionate
C to utility curve changes in price,
E
it is known as
unitary elastic
0 supply
x supply
 Relatively inelastic supply
Y
Relatively inelastic
When the
supply curve proportionate
P S change in
R supply is less
I than the
C proportionate
E changes in
price, it is
S X
known as
O
supply relatively
inelastic supply
 Perfectly inelastic supply
Y

S
When there is
P
Perfectly inelastic
supply curve
no change in
R the quantity
I supplied with
C the change in
E
its price, it is
perfectly
0 S X
supply inelastic
supply
ALL KINDS OF supply CAN BE SHOWN IN
ONE DIAGRAM AS FOLLOW
Y
S5
S2
S3 WHERE
P S1) Perfectly elastic
S4
R supply
S
I
S1 S2)Relatively elastic
supply
C
S3)Elasticity of supply
E
equal to utility
S4)Relatively inelastic
0 S5 X supply
supply S5)Perfectly inelastic
supply
Measurement Of Price Elasticity Of
supply
There are two methods like
1. Percentage method or proportionate
method

2. Geometric method or point method

 1 Percentage method or proportionate method

• (Es) = % Change in Quantity Supplied

% Change in Price

• ES = ∆Q/ ∆P*P/Q
• ∆Q= change in quantity supplied.
• ∆P= change in price
• Q= initial quantity supplied.
• P= initial price of the good
 Geometric method or point method

Es= Difference b/w Qty and intersect on X axis

Difference between Qty and origin
 EXAMPLE
• Price of a good falls from Rs.15 to Rs.10 and
the supply decreases from 100 units to 50
units. Calculate Es.
• Q=100 P= 15
• Q1=50 P1=10

• Es= P/Q*∆Q/∆P = 15/100*50/5 = 1.5

• Es> 1, it is a case of elastic supply
(5) Factors Affecting Price
Elasticity Of supply
 Factors Affecting Price Elasticity Of
supply
• Time Factor
1.Short period - relatively less elastic
2. Long period – more elastic
. Nature of the commodity
1. Perishable goods – relatively less elastic
2. Durable goods – elastic supply
. Technique of production
1. Complex technique - inelastic
2. Simple technique – elastic
.NATURE OF INPUTS USED
1.Commonly used factors – elastic
2.Specialised factors –inelastic
. Future price expectation
1.price increase- inelastic
2. price decrease – elastic
. Natural constraint
less elastic
. Risk Taking
1.Willing to take risk- more elastic
2. Unwilling to take risk- less elastic
(6) Practical Importance of the
Concept of Price Elasticity Of
supply
Practical Importance of the Concept of
Price Elasticity Of supply
• The concept is helpful in taking Business
Decisions
• Importance of the concept in formatting Tax
Policy of the government
• For determining the rewards of the Factors of
Production
• To determine the Terms of Trades Between
the Two Countries