EUROPA SCIENCE & COMMERCE ACADEMY

Economics Notes
Q. No. 12: Define Elasticity of Supply. How it is measured?

Answer: INTRODUCTION: The law of supply expresses the positive relationship between price and quantity supplied. It is the common observation that when price of a commodity increases producers supply more of it and with a fall in price producers supply less of it. The law of supply tells us about the direction of change in QS and price, but it does not describe how to measure the change. The concept which measure the change in QS due to change in price is called elasticity of supply. DEFINITION: Elasticity of supply can be defined as: The degree of responsiveness in supply to a change in price. OR The ration of percentage change in supply to the percentage change in price. EXPLANATION: Elasticity of supply shows the variation in QS due to change in price.
If percentage change in QS is equal to the percentage change in Price,

elasticity of supply is equal to one.

supply is greater than one. If percentage change in QS is less than percentage change in price, elasticity of supply is less than 1. Coefficients of Es: These are as follows: 1: Es = 1 2: Es > 1 3: Es < 1

If percentage change in QS is greater than change in price, elasticity of

MEASUREMENTS OF ELASTICITY OF SUPPLY:

1: Elasticity of Supply Equal to Unity (Es = 1):

If percentage change in supply is equal to the percentage change in price, then elasticity of supply is equal to unity. SCHEDULE: Price QS (Rs.) (Units) 1 10 2 20 DIAGRAMS:
y-axis b a S 10 20 S

P 2 R I 1 C E 0

x-axis

Europa Academy

Composed & Designed By: Basit butt

EUROPA SCIENCE & COMMERCE ACADEMY

Economics Notes

Explanation: The above schedule and diagram shows that when price is Rs. 1, Q S 10 units. When price increases from Rs. 1 to Rs. 2. QS expands from 10 units to 20 units. This shows that percentage change in P and QS are equal. Therefore Es is equal to 1. Formula:
Es = QS P P QS

Here, P = 1, Q = 10 P = 2 1 = 1, Q = 20 10 = 10 10 1 ES = 1 10 ES = 1

2: Elasticity of Supply Greater than One (Es > 1): If percentage change in QS is greater than percentage change in price, elasticity of supply is greater than 1. SCHEDULE: Price (Rs.) 1 2 DIAGRAM:
y-axis S

QS (Units) 10 30

P 2 R I 1 C E 0

b a S 10 20 30

x-axis

Explanation: The above schedule and diagram shows that when price is Rs. 1, QS is 10 units. When price increases from Rs. 1 to Rs. 2 QS expands from 10 units to 30 units. This shows that change in Q S is more than change in P, therefore Es > 1 Formula:

Europa Academy

Composed & Designed By: Basit butt

EUROPA SCIENCE & COMMERCE ACADEMY

Economics Notes
Es = QS P P QS

Here P = 1 QS = 10 P = 2 1 = 1, QS = 31 10 = 20 20 1 1 10 20 = 10 ES = 2 Here Es > 1 Es =

3: Elasticity of Supply Less Than One (Es < 1): If percentage change in supply is less than percentage change in price, ES is less than unity. SCHEDULE: Price (Rs.) 1 2 DIAGRAM:
y-axis S

QS (Units) 10 15

P 2 R I 1 C E 0

b a S 5 10 15

x-axis

EXPLANATION: The above schedule and diagram shows that when price is Rs. 1, QS is 10 units. When price rises from Rs. 1 to Rs. 2, QS expands from 10 units to 15 units. This shows that change in QS is less than change in price, therefore ES<1. Formula:
ES = Q S P P Q S Q S = 10

Here P = 1

P = 2 1 = 1, Q S = 15 10 = 5 5 1 ES = 1 10 5 ES = 10 Es = 0.5 Here ES < 1

Europa Academy

Composed & Designed By: Basit butt