Price Elasticity of Supply

Price elasticity of supply refers to the degree of responsiveness of quantity supplied of a commodity to a
change in its price, ceteris paribus. In other words, the price elasticity of supply is defined as the ratio of
percentage change in quantity supplied to the percentage change in price. It measures the responsiveness or
sensitiveness of supply to change in price. It can be expressed as,

𝑷𝒆𝒓𝒄𝒆𝒏𝒕𝒂𝒈𝒆 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒒𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝐬𝐮𝐩𝐩𝐥𝐢𝒆𝒅

Es = 𝑷𝒆𝒓𝒄𝒆𝒏𝒕𝒂𝒈𝒆 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒑𝒓𝒊𝒄𝒆

∆𝑸𝒔 𝑷
∴ Es = x
∆𝑷 𝑸𝒔
Where, Qs = Initial quantity supplied
∆Qs = Change in quantity supplied
P = Initial price of goods
∆P = Change in price of goods

Types of Price Elasticity of Supply

There are five types of elasticity of supply. They are as follows:
1. Perfectly Elastic Supply (Es = ∞): When a very small (negligible) change in price of a commodity
causes infinitely large change in its quantity supplied, it is a case of perfectly elastic supply. The coefficient
of price elasticity of supply is infinity. It is shown in fig. below.

Es = ∞
P S
Price

O Q1 Q2 Q3 X
Quantity supply
The above figure shows perfectly elastic supply curve where quantity supplied keeps on changing at the same
price P. Perfectly elastic supply curve is a horizontal line parallel to the x-axis. It means that at price OP,
quantity supplied can be OQ1 or OQ2 or OQ3. It is an ideal and imaginary situation.

2. Perfectly Inelastic Supply (Es = 0): When the supply of a commodity does not change despite change in
its price, the supply is said to be perfectly inelastic. In other words, there is no effect of changes in the
price on the quantity supplied. The coefficient of price elasticity of supply is zero. It can be shown by the
figure.

Y S

P3
Es = 0
P2
Price

P1

O Q X
Quantity supplied
The above figure shows the inelastic supply curve showing that quantity supplied is fixed at OQ units
irrespective of the price. Perfectly inelastic supply curve is a vertical straight line parallel to the Y-axis. It
means price may be OP1, or OP2, or OP3, the quantity supplied will be constant at OQ.
3. Relatively Elastic Supply (Es > 1): When a change in price leads to a more than proportionate change
in supply, the supply is said to be relatively elastic. The coefficient of elasticity of supply is greater than
40%
unity. For example, if 20% change in price results 40% change in quantity supplied, then Es = = 20
20%
i.e. Es > 1.
Y

Price P2 Es > 1
∆𝑃
P1
S ∆𝑄

OQ1 Q2 X
Quantity supplied
In the above figure, the elastic supply curve shows that when the price rises from OP1 to OP2, supply rises
from OQ1 to OQ2. The percentage change in quantity supply is more than the percentage change in price.
The supply curve is upward sloping and flatter as shown in fig.
4. Relatively Inelastic Supply (Es < 1): When a change in price leads to a less than proportionate
change in the supply, the supply is said to be less elastic or relatively inelastic. The coefficient of
price elasticity of supply is said to be less than unity. For example, if 20% change in price results 10%
10%
change in supply, then Es = 20% = 0.5 i.e. Es > 1.
Y
S

P2 Es <1
Price

∆𝑃
P1
S ∆𝑄

OQ1 Q2 X
Quantity supplied
In the above figure, inelastic supply curve shows that change in quantity supplied (Q1Q2) is less than
change in price (P1P2). The supply curve is upward sloping and steeper as shown in Fig.
5. Unitary Elastic Supply (Es = 1): When percentage change in quantity supply is equal to the percentage
change in price, the supply of a commodity is said to be unitary elastic. The coefficient of price elasticity
of supply is equal to unity. For example, If 20% change in price results 20% change in supply, then Es =
20%
= 1.
20%

Y
S

P2 Es > 1
Price

∆𝑃
P1
S ∆𝑄

O
Q1 Q2 X
Quantity Supplied
In the above figure, unitary elastic supply curve shows that change in quantity supplied (Q1Q2) is equal
to the change in price (P1P2). The unitary elastic supply curve is a straight upward sloping line forming
45° angles with both the axis.