Elasticity of Supply

• Define elasticity of supply.
• Describe the price elasticity of supply formula.
• Apply price elasticity of supply formula to find the elasticity value.
• Describe degree of price elasticity of supply using supply curve.
• Explain factors affecting the price elasticity of supply.

A small percentage of change in the price of a good will lead to larger percentage of change in the quantity supplied.

Example: 1% increase in price will lead 10% change in quantity supplied.

A large percentage of change in the price of a good will only affect a small percentage of change of the quantity supplied.

Example: 5% change in price will lead 1% increase in quantity supplied.

Percentage change in price equals the percentage change in the quantity supplied.

Example: 10% change in price will lead 10% increase in quantity supplied.

A percentage of change in price has no effect on the percentage of change in the quantity supplied.

An almost zero percentage of change in price brings a very large percentage of change in the quantity supplied.

• Modern methods of production expand output and hence supply tends to be elastic.
• Number of outputs produced in a given period of time is lower when old methods of production are used.

• In the short term, supply tend to be inelastic due to insufficient availability of time to organize and adjust supply to demand.
• In the long term, supply is more elastic. Sellers are more responsive to changes in price since they can adjust their supply or production.

• When the factors of production such as land, labour and capital are available and can easily move from one occupation to another, supply tends to be more elastic.

When product can be sold in different markets, supply is more elastic.

Price falls in one market can be made good in other markets.

• The perishable products like agricultural is inelastic because the seller cannot store for long periods of time.
• The less perishable products is elastic. The seller may store these product for future sale.