Price Elasticity of Supply || Theory of Consumer Behavior || Bcis Notes

Price Elasticity of Supply

Law of supply shows the direction of change in quantity supplied of a commodity with the change in the price of the same commodity. But, this law is unable to justify the degree of relationship between price and supply. Because this law does not tell us about the consequences of the percentage change in price to supply.
Other things being equal, price elasticity of supply measures the degree of change or responsiveness in quantity supplied of the commodity in response to a relative change in its price. In other words, it is the ratio of the percentage change in quantity supplied with the percentage change in price, other things being equal.
es = % ∆ in Quantity supplied ÷ % ∆ in Price

The price elasticity of supply has following five degrees (types):
i) Perfectly Inelastic supply (es=0): If the quantity supplied of a commodity remains unchanged with the change in price, it is said to be perfectly inelastic supply.

ii) Relatively inelastic supply [When es<1, if % ∆Qs < % ∆p]: If the percentage or participate change in quantity supplied is less than a percentage change in price, it is said to be perfectly inelastic supply.

iii) Perfectly elastic Supply [When es = ∞, if % ∆p=0]: If the small rise in price leads to infinity in quantity supplied, it is said to be perfectly elastic supply.

iv) Relatively elastic Supply [When es > 1, if % ∆Qs > %∆p]: If the percentage or proportionate change in quantity supplied is greater than the percentage change in price, it is said to be relatively elastic supply.

v) Unitary elastic supply [When es = 1, if % ∆Qs = % ∆p]: If the percentage change in quantity supplied is equal to the percentage change in price, it is said to be unitary elastic supply.