Thus, the supply of product B is relatively inelastic ( es <1). es < 1. It means, any straight line supply curve, which passes through the origin has unitary elastic supply (proved under geometric method), irrespective of the angle it makes with the origin. Similar to elasticity of demand, elasticity of supply also does not remain same. Therefore, this situation does not have any practical implication. It affects the elasticity of supply to a great extent. Contrarily, if there is no change or negligible change in supply or supply pays no response, it is elastic.” It can be calculated by dividing the percentage change in the quantity supplied with percentage change in the price of a product. Example: Assume that a business firm supplied 450 units at the price of 4500. 55 per unit. 52, the supply reduces to 40,000 Kgs. 51, supply reaches to 35,000. Human and price elasticity as in computer science is an increase in building a car. Geektonight is a vision to provide free and easy education to anyone on the Internet who wants to learn about marketing, business and technology etc. Solution: The supply curve for product P is shown in Figure. Elasticity. In Figure, when the price of product Z is 50, the quantity supplied is 30,000 kgs. On the contrary, in case of durable goods, such as furniture and electric appliances, the supply would be elastic as their supply can be increased or decreased quickly. In this case, the elasticity of supply is less than 1, i.e. As SS curve is extended, it meets OY axis at point T. Now es is represented as. Apart from determining the elasticity or inelasticity of supply, an organization needs to estimate the numerical value of elasticity of supply for making various business decisions. Figure shows that the price of product X remains constant at ₹100 per kg. The elasticity of supply cannot be the same under all circumstances. The price elasticity of supply is defined as the percentage change in quantity supplied divided by the percentage change in the price of a good. For example, if the PES for a good is 0.67 a 1% rise in price will induce a two-thirds increase in quantity supplied. Let us understand these three conditions with the help of the following diagrams: In Figure, SS is the supply curve and at point P the elasticity of the supply is measured. Some of the most important factors are the price of the good or service, the price of other goods and services, the income of the population or person and the preferences of the consumers. It can be calculated by the following formula: Similarly, change in price is the difference between the new price (P1) and original price (P). In others words, a change in price does not really affect consumer demand or supply of the good. Thus, a numerical value is required to measure the elasticity of supply. Therefore, es > 1, implying that the supply is highly elastic. The concept of relatively elastic supply is explained with the help of an example. Elasticity can provide important information about the strength or … Our mission is to provide an online platform to help students to discuss anything and everything about Economics. For that, a tangent needs to be drawn along with the demand curve. Content Guidelines 2. The firm has decided to increase the price of the product to> 5500. Production techniques used by organisations also have a great influence on the supply of their products. Definition: When a percentage change in the quantity supplied is more than a percentage change in the price of a product, it is called relatively elastic supply. Let us understand the concept of relatively inelastic supply with the help of an example. The supply curve for product Z is shown in Figure-17: In Figure-17, when the price of product Z is Rs. Refers to a condition when the proportionate change in the quantity supplied is less than proportionate change in the price of a product. Therefore, the supply of product X is perfectly inelastic (e = 0). For instance, high taxes are levied on goods whose supply is inelastic to generate large revenues. Perfectly Elastic Demand (E P = ∞). The quantity supplied and the price of product P is shown in Table-10: Prepare a supply curve for the supply schedule of product P and determine the type of elasticity of supply demonstrated by the supply curve. Let us understand the concept of a perfectly elastic supply with the help of an example. Therefore the situation does not have any practical implication. Types of Elasticity in Economics. Refers to a condition when the proportionate change in the quantity supplied is more than proportionate change in the price of a product. In other words, the quantity supplied remains constant at the change in price when supply is perfectly inelastic. When price increases to 55, supply reaches to 51,000 kgs. On the other hand, products, such as antiques and old wines, which cannot be reproduced in the same form, have a constant supply. However, when the price increases to 53, supply reaches to 40,000 kgs. Types of Elasticity of Supply: i. Now, we can calculate elasticity of supply at point P as under: The numerical value of elasticity of supply is different for different situations. The price elasticity of supply for such a case is greater than 1, i.e. Therefore, es < 1, a representative that the supply is less inelastic: In Figure, SS is the supply curve and at point P the elasticity of the supply is measured. Relationship between the new price ( P ) and original price ( P ) and original (! A good is elastic ” -Prof Thomas to teach you about price elasticity supply. To 45,000 kgs > 5500 this is because it is influenced by a number of.. Shown in Figure-15: Figure-15 shows that the change in the price of Z... 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