Q1- what is elasticity of supply? give its degrees and kinds.
Ans- it measures the degree of or responsiveness of change in qty. supplied of a commodity due to change in its price.
or
it is ratio of % change in Qty. supplied of a commodity due to % change in its price.
For eg :- if price of commodity increases by 10% and its qty. supplied increases by 20%.
degrees/kinds/types of PES:-
1. perfectly inelastic supply / zero elasticity of supply :-
when due to change in price there is no change in qty. supplied i.e. called perfectly inelastic supply. in this case supply curve becomes 11 to Y axis. for example artistic goods, agricultural goods.
price supply
10 10
11 10
12 10
13 10
14 10
15 10
it is clear from the diagram that when price increases from op1 to op2 and price decreases from op2 to op1 qty supplied remains the same i.e. OQ.
2. less than unitary elastic supply/ less elastic supply or inelastic supply OR highly inelastic supply:-
when % change in price is greater than % change in qty supplied then it is called less than unitary elastic supply.
price supply
10 10
20 15
it is clear from the diagram that % change in price PP1 is greater then % change in supply QQ1. so here elasticity of supply is less than unitary elastic and supply cure is starting from X axis or from the right side of the origin 0.
3. unitary elastic supply :-
when % change in price is equal to % change in supply then elasticity of supply is unitary elastic.supply is starting from the origin.
price supply
10 10
20 20
it is clear from the diagram that % change in price PP2 is equal to % change in supply i.e. QQ1. so here elasticity of supply is starting from the origin.
4. greater than unit elastic or more elastic supply or elastic or highly elastic supply.
when % change in qty. supplied is greater then % change in price then elasticity of supply is greater then unitary elastic.
price supply
10 10
20 30
it is clear from the diagram that % change in supply is greater then % change in price. so here elasticity of supply is greater than unitary elastic & supply curve is starting from left side of the origin.
5. perfectly elastic supply:-
when supply of commodity is infinite at existing price i.e. called perfectly elastic supply or when supply of commodity changes infinitely due to small change in price i.e. called as perfectly elastic supply.
price supply
10 10
10 11
10 12
10 13
10 14
it is clear from the diagram that supply curve is parallel to x axis which shows that price elasticity of supply is infinite.
Q2. what are the methods to measure elasticity of supply?
Ans- the following are the methods to measure PES:-
1. PROPORTIONATE METHOD:- by this method price elasticity of supply is ratio pf % change in supply to % change in price.
2. geometric method or graphic method / point method :-
According to this method elasticity of supply depends upon the origination of supply curve assuming the supply cur5ve to be the upward sloping straight line curve there are three possible situation of elasticity of supply. According to this method following formula is used.
formula of ES = proportion of X axis where extended supply curve intersects / original quantity supplied
1. unitary elastic supply :-
when supply curve starts from the origin then elasticity of supply is unitary elastic.
PES = 1
2. less than unitary elastic supply :-
when supply curve starts from X- axis then elasticity of supply is less than unitary elastic.
PES < 1
3. greater then unit elastic supply :-
when supply curve starts from left side of origin then elasticity of supply greater then unitary elastic.
PES > 1
Q3. what are determinants of elasticity of supply ?
or
what are factors affecting elasticity of supply?
or
what are the determinants of elasticity of supply ?
Ans- nature of commodity : commodity are of 2 types
i) perishable goods :-
which can be used for short period eg. milk, fruits, vegetables etc. in case of such goods supply is relatively less elastic because they cannot b stored.
ii) durable goods :-
in case of durable good like wheat, furniture etc. supply is relatively elastic because they can be stored.
2. cost of production :-
if production of commodity is subjected to increase in cost then supply is inelastic & if production is subject decrease in cost then supply is elastic.
3. nature of inputs used :-
if inputs used in production are easily available then supply will be elastic and if inputs used are not easily available then supply will be inelastic.
4. time period :-
if time period is short then supply will be inelastic and if time period is long then supply will be elastic.
5. effect of nature :-
if nature has more effect on the production of the commodity then supply will be inelastic and if nature has no effect on the production of commodity then supply will be elastic.
6. risk taking :-
if entrepreneur is willing to take risk then supply is elastic and if entrepreneur are not ready to take the risk then supply is inelastic.
Q4. give the role of time period and the behavior of supply curve ?
Ans- time element and supply curve :-
1. very short period :-
it is the time period in which all the factors of production are fixed. hence supply can be increased only upto a existing stock. hence supply curve will be perfectly inelastic.
2. short period :-
it is the period in which some factors of production are fixed and some are variable. supply can be increased only by increasing variable factors on fixed factors . in this case supply is relatively less elastic.
3. long period :-
it is the period in which all the factors of production are variable it means in this time period supply can be changed by changing variable factorin this time period supply is more elastic.
Q5. when two supply curves intersects which is having greater ES ?
Ans- when two supply curves intersects, the ES with flatter curve is more and vice - versa.
it is clear from the diagram that initially price is OP1 and quantity supplied is OQ2. when price increases to OP then quantity supplied at SS curve is OQ and at S1S1 curve is OQ, it is clear that at supply curve S1S1 quantity supplied is more so, its ES is more.
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