Q.The price of a commodity falls from ₹20 to ₹18 and the quantity supplied falls from 200 units to 170 units. Using the arc (average) method, calculate the elasticity of supply.
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🔒 Start your 14-day free trial to unlock the full solution →Concept understanding — Elasticity of Supply
Price elasticity of supply measures how responsive the quantity supplied of a good is to a change in its price. It tells us by what percentage supply expands or contracts when price moves by one percent.
Elasticity of supply captures the producers' responsiveness to price. Because a higher price rewards more production, supply elasticity is normally positive.
Es=% change in price% change in quantity supplied
Degrees of supply elasticity
- Perfectly inelastic (Es=0) — quantity does not change at all; supply curve is vertical (e.g. total land in an economy).
- Inelastic (Es<1) — quantity changes less than proportionately to price.
- Unitary elastic (Es=1) — quantity changes in exact proportion.
- Elastic (Es>1) — quantity changes more than proportionately.
- Perfectly elastic (Es=∞) — supply is unlimited at one price; curve is horizontal.
Determinants
- Time — supply is far more elastic in the long run, when firms can adjust capacity
- Ease of storing goods (storable goods have more elastic supply)
- Ability to shift resources into producing the good
- Spare capacity and availability of inputs
Quick example
Price of a commodity rises from ₹100 to ₹120 and quantity supplied rises from 500 to 560 units:
- % change in price = (20 ÷ 100) × 100 = 20%. …
The arc method uses the averages of the two prices and the two quantities as the base, which suits a comparatively large change between two points. …
Step 1 — Changes and averages. ΔP=18−20=−₹2; ΔQ=170−200=−30 units.
Average P=220+18=₹19Average Q=2200+170=185 units
Step 2 — Arc elasticity formula.
Es=ΔP/PˉΔQ/Qˉ=−2/19−30/185
Step 3 — Compute.
185−30=−0.1622,19−2=−0.1053
Es=−0.1053−0.1622=1.54 …
Dual-solve by the rearranged form.
Es=ΔPΔQ×QˉPˉ=−2−30×18519=15×0.10270=1.5405≈1.54 …
Using the initial values instead of the averages — that would give the point (percentage) elasticity, not the arc value. Dropping one of the minus signs and reporting a negative elasticity. Ave …
- CA Foundation 2026Set jan-20261 markMCQQ.Which of the following are types of measurement of supply-elasticity? I. Point elasticity II. Inelasticity III. Arc elasticity IV. Perfect elasticity (A) I only (B) II only (C) Both I and IV (D) Both I and III
›Reveal solutionSolution
The two techniques used to measure supply elasticity are Point elasticity (I) and Arc elasticity (III).
Methods of measuring elasticity of supply
- Point elasticity (I): measures elasticity at a single specific point on the supply curve.
- Arc elasticity (III): measures average elasticity between two points on the supply curve, using the average of the two prices and quantities.
Why the others are wrong
- Inelasticity (II) and Perfect elasticity (IV) describe degrees/types of elasticity (how responsive supply is), not methods of measurement.
Hence only I and III are measurement methods. …
- CA Foundation 2026Set jan-20261 markMCQQ."Total Supply of land is perfectly inelastic from the point of view of the economy", it means: (A) Its supply increases with increase in demand (B) Its supply is unaffected with change in demand (C) Its supply decreases with increase in demand (D) Its supply decreases with decrease in demand
›Reveal solutionSolution
Perfectly inelastic supply means quantity supplied stays fixed regardless of price/demand — the total supply of land does not respond to changes in demand.
Concept
Land is a gift of nature and its total quantity in an economy is fixed. A perfectly inelastic supply has a vertical supply curve: elasticity of supply = 0. No matter how much demand (and hence price) rises or falls, the total quantity offered cannot change.
Therefore the statement means the total supply of land remains unchanged when demand changes.
Why the others are wrong
- (A), (C) and (D) all imply supply responds to demand, which contradicts perfect inelasticity. …
- CA Foundation 2025Set jan-20251 markMCQQ.If the price of Wheat increases from ₹ 1,800 per Quintal to ₹ 2,200 per Quintal and consequently the quantity supplied rises from 2,000 Quintal to 3,200 Quintal. Calculate the elasticity of supply. (A) +0.7 (B) +1.7 (C) +2.7 (D) +3.7
›Reveal solutionSolution
Es=%ΔP%ΔQs=22.22%60%≈+2.7.
Step 1 — Note the changes
- Price: ₹1,800 → ₹2,200, so ΔP=400, base P=1800.
- Quantity supplied: 2,000 → 3,200, so ΔQ=1200, base Q=2000.
Step 2 — Percentage changes
%ΔQs=20001200×100=60%
%ΔP=1800400×100=22.22%
Step 3 — Apply the formula
Es=%ΔP%ΔQs=22.2260≈2.7
Since Es=2.7>1, supply is elastic here. The answer is +2.7. …
- CA Foundation 2025Set jan-20251 markMCQQ.In case of perfectly elastic supply : (A) Es > 1 (B) Es = 1 (C) Es = 0 (D) Es = ∞
›Reveal solutionSolution
Perfectly elastic supply ⇒ a horizontal supply curve ⇒ Es=∞.
Step 1 — Meaning of perfectly elastic supply
Supply is perfectly elastic when firms are willing to supply any amount at a given price, but will supply nothing if price falls even slightly below it. Graphically the supply curve is a horizontal straight line.
Step 2 — Value of elasticity
A horizontal curve means an infinitesimally small price change produces an infinitely large change in quantity supplied, so:
Es=∞
Step 3 — Contrast the other values
- Es=0 → perfectly inelastic supply (vertical curve; quantity fixed).
- Es=1 → unit elastic supply (a straight line through the origin). …
- CA Foundation 2025Set jan-20251 markMCQQ.The Supply function is given as q = 120 + 6p. Find the elasticity of supply, when price is ₹ 10. (A) +1/3 (B) +2/3 (C) -2/3 (D) +3/4
›Reveal solutionSolution
Es=dpdq⋅qp=6×18010=31.
Step 1 — Differentiate the supply function
Given q=120+6p, the marginal change in quantity with price is:
dpdq=6
Step 2 — Find quantity at p = 10
q=120+6(10)=120+60=180
Step 3 — Apply the point-elasticity formula
Es=dpdq×qp=6×18010=18060=31
So the elasticity of supply at ₹10 is +1/3 (inelastic, since it is less than 1). …
- CA Foundation 2025Set may-20251 markMCQQ.Due to an increase in price of product X from ₹ 100 to ₹ 110 quantity supplied increases from 150 units to 200 units. Calculate elasticity of supply using arc-elasticity method. (A) 2.3 (B) 3 (C) 3.33 (D) 3.5
›Reveal solutionSolution
Arc elasticity of supply = (ΔQ ÷ average Q) ÷ (ΔP ÷ average P) = (50/175) ÷ (10/105) = 3 → (B).
Step 1 — Arc elasticity formula
The arc (mid-point) method uses averages as the base:
Es=(Q1+Q2)/2ΔQ÷(P1+P2)/2ΔP
Step 2 — Insert the data
Price: ₹100 → ₹110, so ΔP = 10, average P = (100+110)/2 = 105.
Quantity: 150 → 200, so ΔQ = 50, average Q = (150+200)/2 = 175.
%ΔQ=17550=0.2857,%ΔP=10510=0.0952
Step 3 — Compute
Es=0.09520.2857=3.0 …
- CA Foundation 2024Set sep-20241 markMCQQ.The price of a commodity is ₹ 10 per unit. At this price quantity supplied is 500 units. Price elasticity of supply of the commodity is 1.25. At what price the quantity to be supplied would be 20% more ? (A) ₹ 8.40 (B) ₹ 11.60 (C) ₹ 12.50 (D) ₹ 7.50
›Reveal solutionSolution
%ΔP=Es%ΔQs=1.2520%=16%, so new price =10×1.16=₹11.60.
Step 1 — Write the elasticity of supply formula
Es=%ΔP%ΔQs
Given Es=1.25 and the desired %ΔQs=+20%.
Step 2 — Solve for the required price change
%ΔP=Es%ΔQs=1.2520%=16%
Step 3 — Apply to the current price
Current price is ₹10, so the new price =10+(16% of 10)=10+1.60=₹11.60.
Step 4 — Why the other options are wrong
- (A) ₹8.40 / (D) ₹7.50 — these lower the price, but supply rises only when price rises. …
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