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Elasticity of Supply

 

Elasticity of supply measures the change in the amount that a firm supplies in response to a change in price. It is measured as follows

 

percentage change in quantity supplied
percentage change in price

Again the Q is on top, remember QPR.

Values of price elasticity of supply

        Elasticity is greater than one - the good is elastic and is highly responsive to changes in price. A percentage change in price leads to a larger percentage change in the quantity supplied. A straight line supply curve will intersect the price axis.

        Elasticity is equal to one - the good has unitary elasticity, a percentage change in price will lead to an equal percentage change in the quantity supplied. Any straight line supply curve that intersects the origin will have unitary elasticity.

        Elasticity is less than one - the good is inelastic and not very responsive to changes in price. A percentage change in price leads to a smaller percentage change in quantity. . A straight line supply curve will intersect the quantity axis.

        Elasticity is equal to zero - the good is perfectly inelastic and a change in price lead to no change in the quantity supplied.

        Elasticity is equal to infinity - the good is perfectly elastic and any decrease in price will cause the quantity supplied to fall to zero.

 

The different supply curves are shown below:

 

 

 

 

 

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