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. 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  