ELASTICITY OF SUPPLY

Presented by
Rutuja Rajendra Nevase
Roll No-031
Institute- ZCOER(A)
Subject- Economic Analysis
of Business Decision
• The elasticity of supply establishes a quantitative
relationship between the supply of a commodity and it’s
price. Hence, we can express the numeral change in
supply with the change in the price of a commodity using
the concept of elasticity. Note that elasticity can also be
calculated with respect to the other determinants of
supply.
• However, the major factor controlling the supply of a
commodity is its price. Therefore, we generally talk about
the price elasticity of supply. The price elasticity of supply
is the ratio of the percentage change in the price to the
percentage change in quantity supplied of a commodity.
Elasticity of Supply
• Calculating elasticity

Change in Q Change in P
Ep 
Sum of quantities/2 Sum of prices/2

or Change in Q Change in P
Ep 
(Q1  Q2 )/2 (P1  P2 )/2

Q P
Alw ay s u se or Ep 
i d - point Avg. Q Avg. P
th e m a
l
formu
Elasticity of Supply
• Elasticity of supply ranges
– (from) Perfectly Elastic Supply
• Quantity supplied falls to 0 when there is any
decrease in price

– (to) Perfectly Inelastic Supply

• Quantity supplied is constant no matter what
happens to price

Notice: There is no total revenue test for supply

since price and quantity are directly related
 Supply Elasticity Ranges
S
Price

Elasticity of

Price
supply = 0
Elasticity of
supply = 
S
Quantity supplied is
the same for any Suppliers will offer
price! ANY quantity at this
price

0 Quantity 0 Quantity
 Elasticity of Supply: Depends On:
1. Resource substitution possibilities,
-The more unique the resource, the more
inelastic the supply.

2. Time frame for the supply decision,

Momentary supply
Long-run supply
Short-run supply
- The longer producers have to adjust to a price
change, the more elastic is supply.
Supply Elasticity and Time

S1 S2

S3
Price per Unit

P1

Pe As time passes, the

supply curve rotates
to S2 and then to S3
and quantity supplied
rises first to Q1 and
then to Q2

Qe Q1 Q2
Quantity Supplied per Period
Thank You