Question

State and explain the elasticity of supply when a straight line supply curve cuts the Y-axis.

Answer 1

When the percentage change in a commodity’s quantity provided exceeds the percentage change in its price, the supply is said to be elastic. In this instance, the amount delivered is comparatively more sensitive to price fluctuations. Price elasticity will have a numerical value larger than one. The elastic supply curve S₄ is shown in the above figure. Although the specific numerical value of elasticity will vary along the supply curve S₄, elasticity is greater than unity anywhere on the curve. Actually, there is an elastic supply throughout any straight-line supply curve that crosses the Y-axis.