Elasticity of Supply and its determinants

1. SHAKEEL AHMED QURESHI

2. Elasticity of
Supply
The degree of responsiveness or sensitivity
of quantity supplied of a product to a
change in its price is called the elasticity of
supply." This definition can be expressed as
“the percentage change in quantity supply
of a good due to percentage change in the
price of the good is called elasticity of
supply.” Here is the formula to calculate
elasticity of supply
𝜂 𝑠 =
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑦
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒

3. The percentage change in supply is divided by percentage change in price to measure the elasticity of supply.
The ratio between the two percentage changes shows how much elasticity of supply is more than, less than
unity. If the answer of this division is one then elasticity of supply is equal to one.
𝜂 𝑠 =
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑦
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
𝜂 𝑠 =
𝑄2 − 𝑄1
𝑄
× 100
𝑃2 − 𝑃1
𝑃
× 100
𝜂 𝑠 =
𝑄2 − 𝑄1
𝑄
𝑃2 − 𝑃1
𝑃
=
∆𝑄
𝑄
∆𝑃
𝑃
=
∆𝑸
𝑸
.
𝑷
∆𝑷
Elasticity of Supply
𝜂 𝑠 =
∆𝑸
∆𝑷
.
𝑷
𝑸

4. Elasticity of Supply
P
Qs
10
20
400100
S
S
Es > 1
P
Qs
10
20
200100
S
S
Es = 1
P
Qs
10
20
150100
S
S
Es < 1

5. Factors Determining Elasticity of Supply
Nature of the good
Gestation Period
Technology
Storage facilities
Transportation