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Elasticity of supply

The concept of elasticity of supply, as by Alfred Marshall, helps to determine by how much the supply has changed.

Meaning

Elasticity of supply is the degree of responsiveness of the quantity supplied of a good to a change in its price on the part of the sellers.
 
It is also the ratio of percentage change in quantity supplied to percentage change in price.
 
Description: 19834.png 
 
Where q denotes original quantity supplied
 
q = Change in quantity supplied
 
p = Original price
 
p = Change in price

 

Note: As per the law of supply, there is a direct relationship between price and quantity supplied. So, price elasticity of supply is positive.

 

Example
Quantity (units) Price (₹)
500 10
800 15
 
Solution
Change in quantity = 800 – 500 = 300
 
Original quantity = 500
 
Change in price = ₹ 15 – ₹ 10 = ₹ 5
 
Original price = ₹ 10
 
So, % change in quantity demanded
 
= (change in quantity ÷ original quantity)*100
 
= (300 ÷ 500)*100 = 60%
 
% change in price
 
= (change in price ÷ original price)*100
 
= (5 ÷ 10)*100 = 50%
 
Therefore, Es = % change in quantity supplied / % change in price
 
= 60% / 50%= 1.2
 
Or
 
= ∆q / ∆p x p / q
 
= 300 / 5 x 10 / 500
 
=1.2
 




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