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Elasticity of supply

Elasticity of supply. By Mr. Swatanter Singh PGT (ECO.) KV Leh-Ladakh. Previous knowledge testing. Define supply. What is the relationship beween price and supply ? How do we calculate % change in a variable? What is the meaning of word elastic? What is the meaning of word inelastic ?.

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Elasticity of supply

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  1. Elasticity of supply By Mr. Swatanter Singh PGT (ECO.) KV Leh-Ladakh

  2. Previous knowledge testing • Define supply. • What is the relationship beween price and supply ? • How do we calculate % change in a variable? • What is the meaning of word elastic? • What is the meaning of word inelastic ?

  3. Elasticity of supply Price elasticity of supply measures the change in supply of commodity due to change in its price

  4. Methods of measuring price elasticity of supply • Proportionate method or percentage method • Geometric method

  5. Proportionate method or percentage method percentage change in quantity supplied Es = -------------------------------------------- percentage change in price Q1-Q0 --------- x 100 Q0 Es = ------------------------ P1-P0 ---------- x 100 P0

  6. Q/Q0 Es = ----------- P/P0 Q P Es = ------ x ---- P Q

  7. Numerical Ques: Supply of a commodity increases from 20 units to 40 units when price rises by 25%.Calculate price elasticity of supply. Soluion: percentage change in quantity supplied Es = ---------------------------------------------------- percentage change in price 40 – 20 --------- x 100 20 Es = ------------------------ 25 20/20 x100 Es = ------------------- 25 Es = 4

  8. Geometric Method Geometrically ,elasticity of supply depends on the origin of supply curve.

  9. When supply curve starts from origin Es = 1 Price O Quantity Unitary Elastic ( Es = 1)

  10. Es > 1 Price O Quantity Elastic ( Es > 1) When supply curve starts from Y axis

  11. Es < 1 Price O Quantity Inelastic ( Es < 1) When supply curve starts from X axis

  12. Es = 1 Price O Quantiy Perfectly Elastic ( Es = 1) When supply curve is horizontal line parallel to X axis

  13. Es = 0 Price O Quantity Perfectly Inelastic ( Es = 0) When supply curve is vertical line parallel to Y axis

  14. Factors affecting elasticity of supply • Nature of input used • Dependence on natural factors • Risk factor • Nature of commodity • Technique of production • Time factor

  15. Define elasticity of supply. What is the Es if supply curve making an angle of 30o at the origin ? Calculate Es when quantity supplied increase from 30 to 50 due to 20% rise in price. What do you mean by elastic supply? What are the factors affecting Es ? What is the meaning of perfectly inelastic supply ? Exercise

  16. Thanks for your kind attention

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