Economics · Ch 5 — Supply Analysis

Measurement of Price Elasticity of Supply

Two methods are commonly used in MSBSHSE Std XII Economics to actually compute price elasticity of supply.

1. Percentage (proportionate) method. Elasticity is worked out directly as the ratio of the percentage change in quantity supplied to the percentage change in price:

E_s = \frac{\Delta Q / Q_1 \times 100}{\Delta P / P_1 \times 100} = \frac{\Delta Q}{\Delta P} \times \frac{P_1}{Q_1}

2. Point (geometric) method. For a STRAIGHT-LINE supply curve, elasticity at any point $R$ on the line can be judged from WHERE the line, extended backward if necessary, meets the two axes:

Where the extended straight-line supply curve meets an axis	Elasticity at every point on that line
Cuts the price axis (Y-axis) at a positive price	$E_s > 1$ (relatively elastic)
Cuts the quantity axis (X-axis) at a positive quantity	$E_s < 1$ (relatively inelastic)
Passes exactly through the origin	$E_s = 1$ (unitary elastic) at every point, regardless of the line's steepness

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