Supply Curve and Five Elasticities

A supply curve is a graphical representation of the supply schedule of a product. Every point on the curve shows a combination of price and supply of the product. However, different styles of curve in the graph explain price-supply relationship in different colors.

The supply curve styles help us understand sensitivity (elasticity) of the product supply to ratio of change in the price. The elasticity of a product can be measured with this formula:

Supply Curve

Some products respond very quickly to small changes in the price while others take a long time. Some respond with huge impact while others would need a bigger change in price to affect supply chain. These factors help us to understand whether we should enter some business or not. If the impact on supply shall be long run, it may not be easy to enter. However, in case of short run elasticity, we may have to decide how much supply we should increase or decrease to maximize the profits. Furthermore, in long run elasticity we need to increase capital (land, equipment, technology etc) while in short run added labor shall bear the fruit.

Supply Curve for Public Managers

supply curves

In public policy, the concept of elasticity of supply can help us a lot. We can measure how we can increase, decrease or even eliminate supply of a product by making changes in its price. For example, the tobacco is dangerous for health (?-question mark is for me as well!).

Smoking also creates negative externality for the closer ones. Heavy fines on public smoking can reduce impact of the externality. Still the smoker still needs health products to cure his health. The best public policy would to increase price of smoking that not only reduces smoking but also generates revenue for health of the active and passive smokers. You can find a $1.00 cigarette at Singapore airport but you will have to pay $7.00 to $10.00 more inside Singapore. It generates huge taxes not only to treat the active smokers but also the passive ones. It also goes to universities and hospitals.

The curve style can help us in such critical situations. Five classes of elasticity of supply curve can be understood with this table.


Supply Curve


Value of elasticity

∆ in Price vs. ∆ in Quantity Supplied



Perfectly elastic


An infinite small decrease in price causes infinite large change in supply.


Flat but not Horizontal

Relatively Elastic


Relatively small change in price causes large change in supply.


Straight Line

Unit Elastic


Any change in price causes equal relative change in supply.


Steep but Not Vertical

Relatively Inelastic


A large change in price is required for a small change in supply.



Perfectly inelastic


Change in price does not cause any change in supply.

A Simple Video to Understand the Concept

It is not a difficult concept. But the easiest way to keep in mind for a long time is a video. I have found this video very helpful for elasticity or in-elasticity of a supply product.

Origin of Supply and Demand Model

Supply and Demand Lesson

Perfect Price Elasticity of Supply

Relative Elasticities and Inelasticity of Supply

Exceptions to Demand and Supply