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:
