Price Elasticity of Supply: Meaning, 5 Degrees, Measurement & Determinants
Master the degree of responsiveness of quantity supplied to price changes. Learn the 5 distinct elasticity categories, compute elasticity using Percentage and Geometric (Point) methods, understand intercept rules, and analyze key determinants like time horizon and perishability.
1. Meaning of Price Elasticity of Supply (eₛ)
Price Elasticity of Supply (eₛ) measures the degree of responsiveness of quantity supplied of a commodity to a change in its price.
Core Formula:
Because price and quantity supplied are directly related (Law of Supply), the value of eₛ is always positive.
A given price increase (OP to OP₁) causes a large increase in quantity supplied (OQ₀ to OQ₂). eₛ is higher / more elastic.
The same price increase (OP to OP₁) causes a smaller increase in quantity supplied (OQ₀ to OQ₁). eₛ is lower / less elastic.
2. Degrees (Types) of Price Elasticity of Supply
1. Perfectly Inelastic Supply
Quantity supplied does not change at all regardless of price changes. Supply curve is a vertical line parallel to Y-axis. Example: Supply of eggs/fish in very short period.
2. Less Than Unit Elastic (Inelastic)
% Change in Qₛ is less than % Change in Price (e.g., Price rises 100%, Qₛ rises 50%). Steeper curve intersecting positive X-axis. Common in perishable goods (tomatoes).
3. Unitary Elastic Supply
% Change in Qₛ equals % Change in Price (e.g., Price rises 50%, Qₛ rises 50%). Supply curve is a straight line passing through origin (0,0).
4. More Than Unit Elastic (Elastic)
% Change in Qₛ is greater than % Change in Price (e.g., Price rises 100%, Qₛ rises 150%). Flatter curve intersecting Y-axis or negative X-axis. Common in durable goods.
5. Perfectly Elastic Supply
Quantity supplied expands or contracts infinitely without any change in price. Supply curve is a horizontal line parallel to X-axis. Theoretical extreme in competitive markets.
3. Percentage (Proportionate) Method of Calculation
This is the most widely used mathematical method for calculating exact numerical elasticity values.
Textbook Example: Commodity X
At price P₁ = ₹ 10, Q₁ = 40 units. Price rises to P₂ = ₹ 16.25, Q₂ = 60 units. Elasticity eₛ = 0.8.
Verification: ΔQ = 20, ΔP = ₹ 6.25. eₛ = (20 / 6.25) × (10 / 40) = 3.2 × 0.25 = 0.8 (Less than unit elastic).
4. Geometric (Point) Method & Intercept Rules
The geometric method measures elasticity at a specific point on the supply curve by extending the curve until it intersects the X-axis (Quantity axis) at point B.
BQ > OQ → eₛ > 1. Any straight line supply curve intersecting Y-axis or negative X-axis is elastic.
BQ < OQ → eₛ < 1. Any straight line supply curve intersecting positive X-axis is inelastic.
BQ = OQ → eₛ = 1. Any straight line passing through origin has unitary elasticity, regardless of its angle/slope!
5. Factors Influencing Price Elasticity of Supply
Perishable Goods: Inelastic (eₛ < 1) as they spoil quickly (fruit, milk).
Durable Goods: Elastic (eₛ > 1) as they can be stored when prices fall.
If marginal cost rises sharply with extra output → Inelastic supply.
If marginal cost remains flat or decreases → Elastic supply.
Very Short Period: Perfectly inelastic (eₛ = 0).
Short Period: Inelastic (eₛ < 1).
Long Period: Highly elastic (eₛ > 1) as all factors adjust.