Elasticity of Supply

Using the concept of Elasticity of supply, we can demonstrate the statistical change in supply concerning the change in the price of a good or service. It should be noted that Elasticity can also be determined concerning the other supply determinants. The price of a commodity is the most important element controlling its supply. As a result, we commonly understand Elasticity of supply as equivalent to the price elasticity of supply. The price elasticity of supply is the proportion of a commodity’s percentage change in price to its percentage change in the quantity supplied.

Elasticity Of Supply:

The price elasticity of supply measures how responsive a specific good’s quantity is to a change in price. Elasticity is an indicator of how price changes affect the supply or demand for a given commodity. Elasticity is characterized as the proportional change of one parameter over the proportional change of another parameter.

Stock, time frame, accessibility of substitute products, and spare capacity are all factors that directly impact the Elasticity of supply for the goods. Combining these factors for a given commodity will evaluate whether the price elasticity of supply in response to a price change is elastic or inelastic.

Price Elasticity Of Supply:

The price elasticity of supply has a range of possible values as mentioned below:

PES>1: The price elasticity of supply is greater than one indicates that supply is elastic.

PES<1: The price elasticity of supply is lesser than one, which indicates that supply is inelastic.

PES =0: The supply curve shall reflect vertical; there is no price response. The supply here reflects on being a Perfectly inelastic supply.

PES = ∞ The supply curve shall reflect on being horizontal; extreme changes in demand develop in response to a comparatively slight price change. The supply here reflects on being a perfectly elastic supply.

Elastic goods & Inelastic goods:

Elastic goods are typically regarded as high-end items. A price increase for such an elastic good does significantly affect consumption. The good is regarded as something that people can compromise to save money. Theatre tickets are an example of an elastic good because they are regarded as enjoyment rather than a requirement.

Inelastic goods are frequently referred to as essentials. Because it is not something people cannot compromise upon, a price change affects consumer demand and, correspondingly, the supply of the goods. Water, fuel oil, accommodation, and food are inelastic goods.

Determinants of the price elasticity of supply:

• The number of producers: the convenience of entering the market.
• Spare capacity: if demand changes, it is straightforward to increase production.
• Switching ease: if goods production can be diversified, supply is much more elastic.
• Storage ease: When goods can be easily stored, the immediate reaction of the elastic raises the demand.
• Production time: a shorter production time allows for a quicker response to a price increase.
• Training period: When a company spends on training investment, supply is much more elastic due to price increases.
• Resource mobility: when it is easier to move resources into the industry, the supply curve becomes more elastic.
• Cost reaction: if costs go up slowly, the quantity supplied will increase. If costs rise rapidly, the stimulation to production will be quickly trapped.

Calculating the Elasticity of supply and demand for a product in response to price changes reveals the consumer interests and demands. A product’s Elasticity will be marked as perfectly elastic, comparatively elastic, unit elastic, fairly inelastic, or inelastic.

Elasticity Of Supply Formula:

The Elasticity of the supply formula is as per below mentioned:

Es=%△P%△Q

Where,

Es =  elasticity of supply

△P = change in quantity supplied

P = quantity supplied

△Q = change in commodity price.

Q = Price

Hence, the Elasticity of supply is equal to the percentage of change in supplied quantity divided by the percentage change in the commodity’s price.

Price elasticity of supply formula:

The price elasticity contributes to the achievement of how much the supplied quantity changes as a result of a price change. The calculations and understandings are the same for the price elasticity of demand. The only difference is about the producers and not the consumers. How the producers react to price changes is interpreted rather than how consumers respond to the price change.

Price elasticity of supply formula is same as Elasticity Of Supply Formula. The difference in quantity measures the price elasticity of supply supplied divided by the change in price in terms of percentage. Because this Elasticity is measured with the supply curve, the supply price elasticities are always positive integers.

Price elasticity of supply =%△P%△Q

Price Elasticity of Supply= ​ ​​Percentage change in pricePercentage change in quantity

Where,

△P = change in quantity supplied

P = quantity supplied

△Q = change in commodity price.

Q = Price

Conclusion:

Companies hope to maintain a high price elasticity of supply to remain adaptable if the price of their products changes, to generate more profit when the prices rise, and reduce production if prices fall. Companies can perform a variety of things to help boost the price elasticity of supply.

The companies can use enhanced technology, improved equipment, and software to boost productivity. Price elasticity of supply is also boosted by additional capacity and capacity, which includes increasing supplies on hand and expanding storage capacity and systems. Aside from that, improving how goods are delivered and dispersed can be advantageous. Price elasticity of supply is also enhanced by ensuring that goods can be stored for an extended period. When the elasticity of supply of a commodity is infinite, it becomes perfectly elastic