The price of a commodity is ₹ 10 and the supply is 100 units. If the price increases to ₹ 12 and supply increases to 120 units, calculate the price elasticity of supply.
OR
If the price of a good in a perfectly competitive market is ₹ 10 per unit, compute the total revenue and marginal revenue in the given table:
| Quantity Sold (Units) | Total Revenue (₹) | Marginal Revenue (₹) |
|---|---|---|
| 1 | ||
| 2 | ||
| 3 |
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🔒 Start your 14-day free trial to unlock the full solution →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?"
Es=%ΔP%ΔQs
Where:
- Es = Price Elasticity of Supply
- %ΔQs = Percentage change in quantity supplied
- %ΔP = Percentage change in price
Since supply curves are upward-sloping (higher price → higher quantity supplied), Es 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.
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 Es | Term | Meaning | Example |
|---|---|---|---|
| Es=0 | Perfectly inelastic | Quantity supplied does not change at all when price changes | Seats in a sold-out stadium |
| 0<Es<1 | Inelastic | Quantity supplied changes by a smaller percentage than price | Agricultural crops in a season |
| Es=1 | Unit elastic | Quantity supplied changes by exactly the same percentage as price | A theoretical benchmark |
| Es>1 | Elastic | Quantity supplied changes by a larger percentage than price | Most manufactured goods in the long run |
| Es=∞ | 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) |
Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. Here both change by 20%, so elasticity equals 1. (The alternative fills a TR and MR table at a constant price of ₹10.) …
Es = % change in quantity supplied ÷ % change in price = 20 ÷ 20 = 1. [OR TR = ₹10, ₹20, ₹30 and MR = ₹10 throughout.]
Option 1 — Price elasticity of supply:
| Item | Value |
|---|---|
| Initial price (P) and supply (Q) | ₹10, 100 units |
| New price and supply | ₹12, 120 units |
| Change in supply (ΔQ) | 20 units → % change = 20 ÷ 100 = 20% |
| Change in price (ΔP) | ₹2 → % change = 2 ÷ 10 = 20% |
| Es = %ΔQ ÷ %ΔP | 20 ÷ 20 = 1 |
The price elasticity of supply is 1, i.e. supply is unitary elastic (quantity supplied changes in exactly the same proportion as price).
Option 2 — Total Revenue and Marginal Revenue at price ₹10 per unit (TR = Price × Quantity; MR = change in TR for one more unit):
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Showing the 12 most recent of 13 on this concept.
- CBSE 2026Set ANNUAL1 markQ.How many methods of measuring elasticity of supply?
›Reveal solutionSolution
Elasticity of supply is measured by the Percentage Method and the Geometric (Graphic) Method.
- Percentage (Proportionate/Arc or Point) Method: Es = (Percentage change in quantity supplied) ÷ (Percentage change in price) = (ΔQs/Qs × 100) ÷ (ΔP/P × 100). This gives a precise numerical value of elasticity.
- Geometric (Graphic) Method: elasticity can also be read directly off a supply curve diagram, using the position of the curve relative to the origin — e.g., a straight-line supply curve passing through the origin has Es = 1 (unitary elastic) at every point; one that, if extended, would cut the price (Y) axis has Es > 1 (elastic); one that would cut the quantity (X) axis has Es < 1 (inelastic) — these are visual/geometric shor …
- CBSE 2025Set ANNUAL1 markMCQQ.In very short period, supply will be (A) perfectly elastic (B) perfectly inelastic (C) elastic (D) none of these
›Reveal solutionSolution
Very-short-period supply is fixed, hence perfectly inelastic — answer (B).
Price elasticity of supply measures how responsive quantity supplied is to price. In the very short period producers cannot add to output (no time to produce more), so the quantity supplied stays the same whatever the price. This gives a vertical supply curve and an elasticity of zero, i.e. perfectly inelastic supply. Perfectly elastic (A) would be a horizontal curve typical …
- CBSE 2025Set ANNUAL1 markMCQQ.The measurement of the elasticity of supply is made known as (A) (DeltaQs/Qs) / (DeltaP/P) (B) (Qs/DeltaP) x (1/P) (C) (Qs/DeltaQs) x DeltaP (D) (DeltaP/Qs) x (P/DeltaQs)
›Reveal solutionSolution
Elasticity of supply = (DeltaQs/Qs) / (DeltaP/P), so the answer is (A).
Price elasticity of supply (Es) measures how much the quantity supplied responds to a change in price:
Es = (percentage change in quantity supplied) / (percentage change in price)
= (DeltaQs / Qs) / (DeltaP / P)
…
- CBSE 2025Set ANNUAL1 markMCQQ.The elasticity of a straight line supply curve originating from the origin of the axes is (A) Less than unity (B) Greater than unity (C) Equal to unity (D) Equal to zero
›Reveal solutionSolution
A straight-line supply curve from the origin has elasticity equal to one, so the answer is (C).
For a linear supply curve, elasticity of supply can be written as Es = (DeltaQs/DeltaP) x (P/Qs). When the straight line starts from the origin, the ratio P/Qs at any point equals the reciprocal of the slope (DeltaP/DeltaQs), so the two cancel and Es = 1 at every point on the line, regardless of its steepness. Thi …
- CBSE 2025Set ANNUAL1 markMCQQ.Under ceteris paribus if the quantity supplied of a good increases by 6% due to an increase in its price by 5% then what will be the value of price elasticity of supply of the good? (A) 30 (B) 0.83 (C) 1.2 (D) 2
›Reveal solutionSolution
Es = 6% / 5% = 1.2, so the answer is (C).
Price elasticity of supply is calculated as:
Es = (percentage change in quantity supplied) / (percentage change in price)
Here quantity supplied increases by 6% when price increases by 5%, so
Es = 6% / 5% = 1.2 …
- CBSE 2025Set ANNUAL1 markQ.Fill in the blank: The law of supply does not apply to ______ goods.
›Reveal solutionSolution
The law of supply does not apply to agricultural/perishable/rare goods.
The law of supply states that, other things equal, a higher price leads to a larger quantity supplied. This assumes producers can expand output in response to a higher price. It does not apply where supply cannot be increased:
- Agricultural goods – output is fixed in a season and depends on nature, so a higher price cannot raise this season's supply.
- Perishable goods – cannot be stored, so sellers must sell whatever quantity they have regardless of price. …
- CBSE 2024Set ANNUAL1 markMCQQ.When the proportionate change in the supply of goods is more than the proportionate change in its price, the elasticity of supply will be (A) Less than unit (B) Equal to unit (C) Greater than unit (D) Infinite
›Reveal solutionSolution
If quantity supplied changes more than price (in %), elasticity of supply is greater than one, so the answer is (C).
In the BSEB Inter Class-12 Economics syllabus, price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. When the proportionate change in supply is more than the proportionate change in price, the ratio exceeds one, so supply is **relatively elastic — greater than unit (Es > 1) …
- CBSE 2024Set ANNUAL1 markMCQQ.es = 0 means that elasticity of supply is (A) Perfectly elastic (B) Perfectly inelastic (C) Less elastic (D) Unit elastic
›Reveal solutionSolution
Es = 0 means supply does not respond to price at all — perfectly inelastic supply, so the answer is (B).
In the BSEB Inter Class-12 Economics syllabus, when the elasticity of supply equals zero (Es = 0), the quantity supplied remains completely unchanged however much the price changes. This is perfectly inelastic supply, shown by a vertical supply curve (e.g. a fixed quantity like a rare artwor …
- CBSE 2024Set ANNUAL1 markQ.Fill in the blank: Elasticity of supply refers to quantitative relationship between ______ and quantity supplied.
›Reveal solutionSolution
Elasticity of supply is the quantitative relationship between price and quantity supplied.
Price elasticity of supply measures the degree of responsiveness of the quantity supplied of a good to a change in its price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. Hence it expresses the quantitative relationship betwee …
- CBSE 2020Set MARCH1 markMCQQ.When the supply curve is vertical, the elasticity of supply is(a) a) es=1(b) b) es=1(c) c) es=0(d) d) ex=∞
›Reveal solutionSolution
A vertical supply curve is perfectly inelastic, so elasticity of supply = 0.
Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. When the supply curve is a vertical straight line, quantity supplied is fixed regardless of price, so the percentage change in quant …
- CBSE 2019Set 58/2/11 markQ.If the supply curve is a straight line parallel to the vertical axis (Y-axis), supply of the good is called as _________. (Fill up the blank)(a) Unitary Elastic Supply(b) Perfectly Elastic Supply(c) Perfectly Inelastic Supply(d) Perfectly Elastic Demand
›Reveal solutionSolution
A supply curve parallel to the vertical axis means quantity supplied does not change at all when price changes — this is perfectly inelastic supply. The correct answer is (c) Perfectly Inelastic Supply.
The key here is to connect the shape of the supply curve to what it tells us about the producer's response to price changes. Elasticity of supply measures how much quantity supplied changes when price changes. A straight line parallel to the Y-axis means that no matter what the price is — high or low — the quantity supplied stays the same. That is the defining feature of zero responsiveness.
Think of a fixed, perishable good like a stadium's seats for a one-night concert. The number of seats is fixed; even if ticket prices skyrocket, you cannot create more seats overnight. The supply curve for those seats is a vertical line. The producer cannot increase supply in response to higher prices, so supply is perfectly inelastic.
Now let's walk through the options to see why only one fits.
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Unitary Elastic Supply means that a 1% change in price leads to exactly a 1% change in quantity supplied. The supply curve for unitary elastic supply is a straight line passing through the origin (a ray from the origin). A vertical line does not pass through the origin (except at zero quantity), so this is not the case.
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Perfectly Elastic Supply means that even a tiny change in price leads to an infinite change in quantity supplied — producers are willing to supply any amount at a given price. The supply curve here is a horizontal line parallel to the X-axis. A vertical line is the exact opposite, so this is wrong. …
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- CBSE 2019Set 58/3/11 markQ.If the percentage change in quantity supplied of commodity X is more than the percentage change in price of the commodity X, the coefficient of price elasticity of supply would be _______________: (Choose the correct alternative)(a) Es = 1(b) Es < 1(c) Es = 0(d) Es > 1
›Reveal solutionSolution
When quantity supplied responds more than proportionately to a price change, supply is elastic and the coefficient exceeds unity.
Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. It tells us how sensitive producers are to price signals in the market.
The coefficient is defined as the ratio of the percentage change in quantity supplied to the percentage change in price:
Es=Percentage change in pricePercentage change in quantity supplied
The question states that the percentage change in quantity supplied is more than the percentage change in price. In other words, if price rises by, say, 10%, quantity supplied rises by more than 10%—perhaps 15% or 20%. When we form the ratio, the numerator (quantity response) is larger than the denominator (price change). …
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