Measurement of Relative elasticity of Supply

A relative elasticity of supply is expressed with a flat but not horizontal curve which starts from Y-axis. It is always greater than one and is denoted with value Es>1. It means the percentage change in quantity is greater than the percentage change in price. In other words, a small difference in price can bring a significant shift in supply.

relative elasticity of supply

Suppose we are selling 10 burgers for $22.00. Addition of one dollar price shall allow us to supply 10 more burgers and be still in profit. It can be seen in economies of scale.

Similarly, a slight decrease in price also affects the supply in the same way. However, when you reach $19.00, the supply of a single unit would bring less marginal revenue than marginal cost.

Let’s calculate it with given sample data:

Sample Data

Change in Q

Change in P

Es=   ∆Q/∆P x P/Q

Q=    10

Q1=  20

P=    22

P1=   23

∆Q= Q1-Q

∆Q= 20-10

∆Q=  10

∆P= P1-P

∆P= 23-22

∆P= 1

Es=   10/1 x 22/10

Es=   10 x 2.2

Es=   22

Calculating Unitary Elasticity of Supply

unitary elasticity of supply

Change in price on straight supply curve equally affects the supply of the product. The curve starts from the point of origin and is expressed with a value of Es=1.

In fact, the Es=1 is borderline between the elastic and inelastic supplies. The elasticity of one describes that a 10% change in price causes 10% change in quantity supplied. In other words, every movement in price causes the same level of movement in supply.

Sample Data

Change in Q

Change in P

Es=   ∆Q/∆P x P/Q

Q=    10

Q1=  20

P=    10

P1=   20

 

∆Q= Q1-Q

∆Q= 20-10

∆Q=  10

 

∆P= P1-P

∆P= 20-10

∆P= 10

Es=   10/10 x 10/10

Es=   1 x 1

Es=   1

 

Measuring Relative In-elasticity of Supply Curve

relative inelasticity of supply

It is another side of the coin. If some products are not perfectly elastic in supply, they may be very close to such a product. Likewise, there can be products which are not perfectly inelastic but very close to such a product. The supply of such products is a relatively inelastic. It is expressed graphically with a steep but not vertical supply curve. It starts from the x-axis and is always less than one. It is expressed with a value of Es<1.

Its description is quite the opposite to the relative elasticity of supply. The price affects very little on the supply of the product. In fact, the percentage change in supply is lesser than the percentage change in price. We can say that we would need to change the price a lot to bring a meaningful change in the supply of the product.

In this graph, we would need $10.00 change in price to make a change of one unit in quantity supplied. We can calculate relatively inelastic supply with following data:

Sample Data

Change in Q

Change in P

Es=   ∆Q/∆P x P/Q

Q=    22

Q1=  23

P=    10

P1=   20

 

∆Q= Q1-Q

∆Q= 22-23

∆Q=  1

 

∆P= P1-P

∆P= 20-10

∆P= 10

Es=   1/10 x 10/22

Es=   0.10 x 0.454

Es=   0.0454

 

Calculating Perfectly Inelasticity of Supply

inelasticity of supply

Perfectly inelastic supply means that supply does not change with a change in price. A vertical curve starting from x-axis displays this model in a graphical presentation. It is denoted with Es=0 and can be calculated through percentage method as well.

Let's measure it! 

Sample Data

Change in Q

Change in P

Es=   ∆Q/∆P x P/Q

Q=    30

Q1=  30

P=    10

P1=   20

 

∆Q= Q1-Q

∆Q= 30-30

∆Q=  0

 

∆P= P1-P

∆P= 20-10

∆P= 10

Es=   0/10 x 10/30

Es=   0 x 0.333

Es=   0

 

A Few Points to Be Kept in Mind

The most important thing is that we may face negative values during our calculations. As a rule, we should ignore the negative signs in resultant values.

The elasticity of supply is a comparison of the percentage change in price and quantity. It depends on two factors, i.e., amount of change in price and supply, and starting point or base value of the supply. We can see supply curves starting from different points in the graphical presentation.

To simplify things we can say that value of Es=1 shows a proportional change in price and supply. When the elasticity of supply is more or less than 1, it can be categorized as elastic and inelastic respectively.

Supply and Demand for Managers

Origin of Supply and Demand Model

Supply and Demand Lesson

Supply Curve and Elasticities

Perfect Price Elasticity of Supply

Exceptions to Demand and Supply

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I just find it difficult to understand relative elasticity and inelasticity would any one please help me?