Elasticity Of Supply

The elasticity of supply can be defined as the degree of responsiveness of change in quantity supplied as a result of price change.  The elasticity of supply measures the extent to which the quantity of a commodity supplied by a producer changes as a result of a little change in the price of the commodity. […]

The elasticity of supply can be defined as the degree of responsiveness of change in quantity supplied as a result of price change.  The elasticity of supply measures the extent to which the quantity of a commodity supplied by a producer changes as a result of a little change in the price of the commodity.

 

Measurement Of Elasticity Of Supply

The elasticity of supply can be measured or calculated by using the coefficient of price elasticity of supply.  The formula used in calculating the elasticity of supply is :

 

Elasticity of supply (ES)  =  % change in supply

 

% change in price            =            %∆QS

% ∆P       where ∆ = Change

 

QS = Quantity supplied

 

P = Price

 

% = Percentage

 

The table below shows the relationship between prices of goods and the unit of commodity supplied.

 

Price  (N)                    Quantity Supplied

 

9                                850

 

10                              1000

 

11                              1,150

 

Calculate the elasticity of supply when price falls from N10.00 to N9.00 State whether the supply in (iii) above is elastic or inelastic (WASSCE 1994)

New Qty  –  Old Qty      x    100

 

Old Qty                         1

Old  Quantity  =  1000

 

New  Quantity  = 850

 

New – Old   x  100

 

Old         1

850  –  1000   x   100

1000                   1

150   x   100   =  15%

1000     1

Old  Price  =  N10

New Price   =  N9

New Price – Old Price   x  100

Old Price                1

9 – 10    x   100   =   1    x    100   =   10%

10                1        10           1

 

Elasticity of Supply =  15   =  1.5

10

 

Types Of Elasticity Of Supply

Perfectly (Zero) Inelastic Supply: Supply is said to be perfectly inelastic if a change in price has no effect whatsoever on the quantity of commodity supplied. In this case, elasticity is equal to zero, E = 0

Fairly Inelastic Supply: Supply is said to be inelastic, if a change in price leads to a smaller or slight change in the quantity of goods supplied. In this case, elasticity is less than one but greater than zero, E > 0 < 1                                      s

Unity or Unitary Elastic Supply: Supply is said to be unitary when a change in price leads to an equal change in the quantity of goods supplied. In other words, a 5% change in price will equally lead to a 5% change in supply. In this case, elasticity of supply is equal to one, E = 1.

Fairly Elastic Supply: Supply is said to be fairly elastic if a small change in price leads to a greater change in the quantity of commodity supply. In this case, elasticity is greater than one but less than infinity, E > 1 < o0.

Perfectly ( Infinitely ) Elastic Supply: Supply is said to be perfectly elastic when a change in price brings about an infinite effect on the quantity of goods supplied. In other words, a slight increase in price can make producer to increase the supply of the commodity, while a slight decrease in price will make producer to stop the supply of the commodity. In this case, elasticity is equal to infinity, E = o0.

 

Factors Affecting Elasticity Of Supply

Cost of Production: The low cost of production normally results in elastic supply, and while the high cost of production results in inelastic supply.

Nature of Goods: While durable goods are inelastic  due to their nature, perishable goods are elastic in supply.

Cost of Storage: Producer will supply all their goods to the market if the cost of storage is very thereby making the supply to be elastic, and vice – versa.

Time: This relates mainly to agricultural produces which remain for a long time in the farm before they are harvested. Before their harvest, their supply is inelastic but after harvest, it becomes elastics.

Market Discrimination: Elasticity of supply of a commodity depends on where it is sold. When few commodities are sold at a particular location as a result of lower price, such commodity can be taken to another location where the price are higher. In this  case, supply is elastic and vice – versa.

Availability of Storage Facilities: The availability of storage facilities leads to inelastic supply after harvest, while non – availability of storage facilities leads to elastic supply.

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Elasticity Of Demand | Meaning, Types, Price, Price Elasticity Of Demand

Change In Quantity Demanded

Theory Of Consumer Behaviour

Cross Elasticity Of Demand

Income Elasticity Of Demand

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