ELASTICITY OF SUPPLY

ELASTICITY OF SUPPLY

Elasticity of supply measures the change in the amount that a firm supplies in 

response to a change in price. It is measured as follows

percentage change in quantity supplied / percentage change in price

Again the Q is on top, remember QPR.

VALUES OF PRICE ELASTICITY OF SUPPLY

•  Elasticity is greater than one - the good is elastic and is highly 

responsive to changes in price. A percentage change in price leads to 

a larger percentage change in the quantity supplied. A straight line 

supply curve will intersect the price axis.

•  Elasticity is equal to one - the good has unitary elasticity, a percentage 

change in price will lead to an equal percentage change in the quantity 

supplied. Any straight line supply curve that intersects the origin will 

have unitary elasticity.

•  Elasticity is less than one - the good is inelastic and not very 

responsive to changes in price. A percentage change in price leads to 

a smaller percentage change in quantity. . A straight line supply curve 

will intersect the quantity axis. 

•  Elasticity is equal to zero - the good is perfectly inelastic and a change 

in price lead to no change in the quantity supplied.

•  Elasticity is equal to infinity - the good is perfectly elastic and any 

decrease in price will cause the quantity supplied to fall to zero. 

The different supply curves are shown below: