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    Economics Assignment - 2

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    Chughvidhi18
    Economics Assignment - 2

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    Economics Assignment - 2

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    Chughvidhi18
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    Economics Assignment - 2

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    Economics Assignment - 2

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    1 views2 pages

    Economics Assignment - 2

    Uploaded by

    Chughvidhi18
    Economics Assignment - 2

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Economics Assignment – 2

    Price Elasticity of Supply

    # Price Elasticity of Supply – Types

    1. Perfectly Elastic Supply

    A commodity is said to have a perfectly elastic supply if it has an infinite supply at a particular
    price and even a slight change in this price brings the supply down to zero. This further means that
    any quantity of the commodity can be supplied at this price and suppliers refuse to supply even
    one unit at any rate different from this price.

    Es is equal to ∞.

    2. Perfectly Inelastic Supply


    A perfectly inelastic supply remains unmoved in response to any change in the price. In
    other words, the supply of such a commodity always remains constant no matter the price.
    A perfectly inelastic supply is represented as Es= 0.
    3. Highly Elastic Supply
    When percentage change in quantity supplied is more than the percentage change in price then
    the supply is said to be highly elastic. Alternatively, the supply of such a commodity has a high
    degree of responsiveness.
    The price elasticity of supply for such a case is greater than 1, i.e. Es>1
    4. Less Elastic Supply
    For a less elastic supply, the percentage change in quantity supplied is smaller than the
    percentage change in price. The supply for such a commodity tends to change by a small factor
    and has a small degree of responsiveness to a change in the price.
    In this case, the price elasticity of supply or Es<1
    5. Unitary Elastic Supply
    When percentage change in quantity supplied is equal to the percentage change in price such
    that the price elasticity of a supply is equal to one, then supply for such a commodity is said
    to be unitary elastic.
    As mentioned, in such a case Es= 1.

    # Methods to Calculate Price Elasticity of Supply

    1. Percentage Method

    The percentage method is the most frequently used method to calculate the price elasticity
    of supply, as was in the case of demand. This method is also known as the proportionate
    method. According to this method, elasticity is measured as the ratio of the percentage
    change in the quantity supplied to a percentage change in the price. The formula to calculate
    the price elasticity of supply using percentage method is as follows:

    Es= Percentage change in quantity supplied/ Percentage change in price

    2. Geometric Method

    The geometric method helps in calculation of price elasticity of supply from the
    supply curve itself. This method is based on the viewpoint that elasticity can be calculated at a
    point on the supply curve. It is also known as the point method or the arc method. The formula
    to calculate elasticity using this method is as below:

    Es= Intercept of supply curve on the X-axis/ Quantity supplied at that price

    3. The Proportionate Method

    The percentage method rightly also known as the proportionate method as the formulas for both
    are interchangeable and one can easily derive the other. Considering and putting the following
    values in the formula for percentage method: Let change in quantity supplied=ΔQ, initial
    quantity= Q, change in price=ΔP, initial price= P, we get:

    Es= { [ΔQ/Q)×100] ÷ [(ΔP/P)×100] }

    = (ΔQ/ΔP)×(P/Q)

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