Economics · Ch 5 — Supply Analysis
Elasticity of Supply — Meaning and Degrees
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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 under the Law of Supply, is normally positive — unlike price elasticity of demand, there is no negative sign to drop by convention. Based on its numerical value, supply is classified into five degrees, closely paralleling the five degrees of demand elasticity taught earlier in this Maharashtra HSC Economics syllabus:
| Degree | Value of | Meaning |
|---|---|---|
| Perfectly elastic | An infinitesimally small price rise calls forth an infinitely large increase 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 (true at every point on ANY straight-line supply curve passing through the origin, whatever its slope) | |
| Relatively elastic | Quantity supplied changes by a larger percentage than price | |
| Relatively inelastic | Quantity supplied changes by a smaller percentage than price |