Categories
Economics

Elasticity of supply

Elasticity of supply measures the degree of responsiveness of the quantity of a commodity offered for sale to a little change in the price of that commodity or to a change in the cost of production.

Types of Elasticity of Supply

  1. Elastic Supply: Supply is elastic if a little change in the price of a commodity or cost of production brings about a more than proportional change in the quantity supplied.
    curve
  2. Inelastic Supply: Supply is inelastic if a little change in the price or the cost of production brings about a less than the proportional change in the quantity of the commodity supplied.
    curve-inelastic
  3. Unitary Elastic Supply: Elasticity of supply is unitary (or unity) if a change in price or cost of production brings about a proportional change in the quantity of the commodity sold.
    curve-unitary-elastic
  4. Perfectly Elastic supply or Infinitely Elastic Supply: a little increase in the price of the commodity would result in the supply of all the stock of that commodity available and vice versa.
    curve-perfectly elastic
  5. Perfectly Inelastic Supply: This indicates that changes in price do not bring any change in the quantity supplied.
    curve-perfectly inelastic

Measurement of Elasticity of Supply

The elasticity of supply can be determined or measured by calculating the co-efficient of the elasticity of supply.

The elasticity of supply can be determined or measured by calculating the co-efficient of the elasticity of supply.
Co-efficient of price elasticity of supply = (% chage in Quantity Supplied)/(% change in price) Negative signs are ignored.

Example

Price (N) Quantity supplied
4 10
6 12

Calculate co-efficient of elasticity of supply
What type of supply is this
How do you know
Solution

Change in quantity supplied

curve example

MEASUREMENT OF ELASTICITY OF DEMAND

Elasticity of demand can be measured or determined by calculating the elasticity of demand co-efficient. The co-efficient of elasticity of demand can be calculated using the following formulae.

  1. Co – efficient of price elasticity demand = %change in quantity demand /% change in price.
  2. C o-efficient of income elasticity of demand = %change in quantity demand /% change in income.
  3. Co-efficient of cross elasticity of demand = %change in quantity of commodity X demanded /% change in price of commodity.

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