Question

Using graphs, explain any four types of elasticity of supply.

Answer 1

1. Perfectly Inelastic Supply: If there is no change in quantity supplied with changes in the price of the product, then the supply of that commodity becomes perfectly inelastic (i.e., Es = 0) The supply curve will be a vertical line. This refers to when only one quantity can be supplied at any given price. The shape of perfectly inelastic supply is shown below.
   
   The figure clearly shows that quantity supplied is fixed at OQ, whatever the price (P, P₁ or P₂) . It cannot be increased or decreased at all. At all points on such a straight-line supply curve, the price elasticity of supply will be zero.
2. Perfectly Elastic Supply: When the supply of a commodity changes without change in its price, the supply of the commodity changes without change in its price and the supply of the commodity will be called perfectly elastic. The value of price elasticity of supply in this case is infinity, es = ∞. It is purely an imaginary concept and can only be explained with the help of an imaginary supply schedule as given below.
   
   Perfectly elastic supply is shown graphically in. PS is the perfectly elastic supply curve, which is a horizontal line. It shows that at OP price, any quantity of the commodity can be supplied. Elasticity of supply will be infinite at all points on such a supply curve.
3. Relatively Elastic Supply: The supply of a commodity will be said to be elastic if the percentage change in quantity supplied exceeds the percentage change in price. In other words, elastic supply is one in which elasticity is greater than one, indicating high responsiveness in supply to change in price. In such a case, a straight line supply curve meets the Y-axis above the point of origin, as shown in Fig. At all points on the supply curve, price elasticity will be greater than one.
   
4. Relatively Inelastic or Less than Unit Elastic: The supply of a commodity will be said to be inelastic if the percentage change in quantity supplied is less than the percentage change in price. For example, if the price of a good fall by 25% and supply decreases by only 5%, supply is said to be elastic
   
   The Fig. shows inelastic supply. In the case of elastic supply, the supply curve meets the X-axis when extended to the right of the origin point. At all points of such a straight line supply curve, the elasticity of supply will be less than one.