At the market price of Rs 10, a firm supplies 4 units of output. The market price increases to Rs 30. The pric

Exercises · Q27

Q. At the market price of Rs 10, a firm supplies 4 units of output. The market price increases to Rs 30. The price elasticity of the firm's supply is 1.25. What quantity will the firm supply at the new price?

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Concept understanding — Price Elasticity of Supply

Price Elasticity of Supply: From the Market to the Formula

Imagine you run a small bakery. One morning, a sudden wedding order comes in — customers are willing to pay double your usual price for 100 extra loaves of bread. Can you instantly produce those 100 loaves? Probably not. You have limited ovens, a fixed amount of dough prepared, and only two hands. You might manage 20 extra loaves by working faster, but 100 is impossible today.

Now imagine the same order comes, but you have a month's notice. You can hire extra help, buy more flour, and even rent another oven. Suddenly, producing 100 extra loaves is easy.

This difference — how much quantity supplied changes when price changes — is exactly what Price Elasticity of Supply (PES) measures.

The Precise Meaning

Price Elasticity of Supply tells us the percentage change in quantity supplied divided by the percentage change in price. It answers: "If the price rises by 1%, by what percentage will sellers increase the quantity they offer?"

E_s = \frac{\% \Delta Q_s}{\% \Delta P}

Where:

$E_s$ = Price Elasticity of Supply
$\% \Delta Q_s$ = Percentage change in quantity supplied
$\% \Delta P$ = Percentage change in price

Since supply curves are upward-sloping (higher price → higher quantity supplied), $E_s$ is always positive. A value of 2 means a 1% price rise leads to a 2% increase in quantity supplied. A value of 0.5 means only a 0.5% increase.

Why It Matters: The Time Factor

The bakery example reveals the single most important determinant of PES: time.

Very short period (market period): Supply is fixed. You cannot increase output at all. Think of fresh flowers at a market — whatever was picked today is all there is. PES = 0 (perfectly inelastic). The supply curve is vertical.
Short period: You can increase output by using existing capacity more intensively — overtime, faster machines, but no new factories. PES is low but positive (between 0 and 1). The supply curve slopes upward gently.
Long period: You can build new factories, train workers, adopt new technology. Supply becomes highly responsive. PES > 1 (elastic). The supply curve is flatter.

Note

NCERT Class-12 Macroeconomics (Chapter 4: Determination of Income and Employment) does not derive PES as a formula — that belongs to Microeconomics (Class-11, Chapter 4: Elasticity of Supply). But the logic of supply responsiveness is essential for understanding how quickly an economy can adjust to demand shocks.

Other Factors That Affect PES

Nature of the good: Agricultural goods (wheat, rice) have low PES in the short run because crops take a season to grow. Manufactured goods (pens, shirts) have higher PES because production can be ramped up quickly.
Storage possibility: Goods that can be stored (canned food, gold) have higher PES because sellers can release stockpiles when prices rise. Perishable goods (milk, fish) have lower PES.
Complexity of production: A simple product like a paper clip has high PES; a complex product like an aircraft has low PES even in the long run.
Availability of inputs: If raw materials and labour are easily available, supply is more elastic.

Interpreting the Numbers

Value of $E_s$	Term	Meaning	Example
$E_s = 0$	Perfectly inelastic	Quantity supplied does not change at all when price changes	Seats in a sold-out stadium
$0 < E_s < 1$	Inelastic	Quantity supplied changes by a smaller percentage than price	Agricultural crops in a season
$E_s = 1$	Unit elastic	Quantity supplied changes by exactly the same percentage as price	A theoretical benchmark
$E_s > 1$	Elastic	Quantity supplied changes by a larger percentage than price	Most manufactured goods in the long run
$E_s = \infty$	Perfectly elastic	Sellers will supply any amount at a given price, but nothing at a lower price	A market with unlimited raw materials and perfect competition (theoretical)

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Using $e_s = \dfrac{\%\Delta Q_s}{\%\Delta P}$ with $e_s = 1.25$ and price rising from Rs 10 to Rs 30, the firm supplies 14 units at the new price.

Price elasticity of supply measures how responsive the quantity supplied is to a change in price — the percentage change in quantity supplied divided by the percentage change in price. Knowing the elasticity and the price change, we can solve for the new quantity.

e_s = \frac{\%\Delta Q_s}{\%\Delta P} = \frac{\Delta Q_s / Q_1}{\Delta P / P_1}

Here $Q_1 = 4$ , $P_1 = 10$ , $P_2 = 30$ and $e_s = 1.25$ .

Step 1 — Percentage change in price:

\%\Delta P = \frac{30 - 10}{10} \times 100 = 200\%

Step 2 — Percentage change in quantity supplied: …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

COHSEM Manipur Higher Secondary 1st Year (Commerce) 2026Set ANNUAL1 markMCQ
$Q. If the price of a commodity is Rs. 4 per unit, a producer supplies 8 units. And price rises to Rs. 5 per unit, the producer is willing to supply 10 units, then the estimated value of the elasticity of supply is - (A) 0 (B) 1 (C) -1 (D) X$
›Reveal solutionSolution
%ΔQs = 25%, %ΔP = 25%, so Es = 25%/25% = 1.

Price elasticity of supply is measured as Es = (%ΔQuantity supplied)/(%ΔPrice).

% change in quantity supplied = [(10 − 8)/8] × 100 = (2/8) × 100 = 25%

% change in price = [(5 − 4)/4] × 100 = (1/4) × 100 = 25% …
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COHSEM Manipur Higher Secondary 1st Year (Commerce) 2025Set ANNUAL1 markMCQ
$Q. If the price of a commodity rises from Rs. 48 per unit to Rs. 50 per unit, its quantity supplied increases from 100 units to 200 units, then the estimated value of the coefficient of price elasticity of supply is : (A) 24 (B) 20 (C) 10 (D) 8$
›Reveal solutionSolution

Es = (% change in quantity supplied) ÷ (% change in price) = 24.

Given: initial price P₁ = Rs. 48, new price P₂ = Rs. 50; initial quantity supplied Q₁ = 100 units, new quantity supplied Q₂ = 200 units.

Change in price, ΔP = 50 − 48 = Rs. 2

Change in quantity supplied, ΔQ = 200 − 100 = 100 units

Price elasticity of supply:

Es = (ΔQ/ΔP) × (P₁/Q₁)

Es = (100/2) × (48/100)

Es = 50 × 0.48

Es = 24

…

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COHSEM Manipur Higher Secondary 1st Year (Commerce) 2024Set ANNUAL1 markMCQ
$Q. Which one of the statement is true in case of Es>1 ? The supply curve is : (A) a vertical straight line parallel to X-axis (B) a horizontal straight line parallel to Y-axis (C) a straight line starting from X-axis (D) a straight line starting from Y-axis$
›Reveal solutionSolution
For a straight-line supply curve, elasticity of supply depends on which axis the line would meet if extended backward: meeting the Y-axis (price axis) gives Es>1; meeting the X-axis (quantity axis) gives Es<1; passing through the origin gives Es=1 everywhere.

This is the standard geometric method for judging price elasticity of supply (Es) from a straight-line supply curve, without needing to compute the ratio of percentage changes at every point:

If the supply line, when extended backward, passes through the origin, Es = 1 (unitary elastic) at every point on it, regardless of its slope.

If the supply line, when extended backward, cuts the Y-axis (price axis) — i.e. it 'starts from' the price axis — then Es > 1 (elastic supply) at every point. …
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COHSEM Manipur Higher Secondary 1st Year (Commerce) 2021Set ANNUAL1 markMCQ
$Q. If the price of elasticity of supply of a good is 0.8, then the quantity supplied of the good is - A. elastic B. inelastic C. perfectly elastic D. perfectly inelastic$
›Reveal solutionSolution
A price elasticity of supply (Es) of 0.8 lies between 0 and 1, which classifies supply as INELASTIC — quantity supplied responds less than proportionately to a change in price.

Elasticity of supply classification:

Es = 0 → Perfectly inelastic supply (quantity supplied does not change at all, whatever the price)

0 < Es < 1 → Inelastic supply (quantity supplied changes LESS than proportionately to price)

Es = 1 → Unit elastic supply

Es > 1 → Elastic supply (quantity supplied changes MORE than proportionately to price)

Es = ∞ → Perfectly elastic supply …
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Q.At the market price of Rs 10, a firm supplies 4 units of output. The market price increases to Rs 30. The price elasticity of the firm's supply is 1.25. What quantity will the firm supply at the new price?

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