Economics · Ch 4 — Supply
Price Elasticity of Supply — Meaning and Degrees
6
Price Elasticity of Supply — Meaning and Degrees
The Law of Supply only tells us the direction in which quantity supplied moves when price changes; it says nothing about how much. Price elasticity of supply () measures the degree of responsiveness of quantity supplied to a change in price:
Since price and quantity supplied normally move in the same direction (unlike demand), is normally positive. Based on its numerical value, supply is classified into five degrees:
| Degree | Value of | Meaning |
|---|---|---|
| Perfectly elastic | An infinitesimally small price change causes an infinitely large change in quantity supplied (a horizontal supply curve) | |
| Perfectly inelastic | Quantity supplied does not change at all, whatever the price (a vertical supply curve — e.g. a rare painting) | |
| Unitary elastic | Percentage change in quantity supplied exactly equals percentage change in price |