Law of supply shows you the direction of change in quantity supplied due to the change in the price of a commodity. It states that both price, as well as supply, move in the same direction. If price increases, supply increases and if price decreases, supply decreases.
However, it does not tell us likely percentage change in quantity supplied in response to a percentage change in the price of a commodity. In other words, it won't tell you how much will the percentage change in quantity supplied in response to a certain percentage change in the price of a commodity
On the other hand, the elasticity of supply shows the magnitude of change in quantity supplied due to change in the price of a commodity. Hence elasticity of supply shows the quantum of change in quantity supplied in response to the change in the price of the commodity.
The elasticity of supply or price elasticity of supply shows the responsiveness of quantity supplied to the change in the price of a commodity.
For example, if the quantity supplied increases by 20% in the response to the 10% increase in price it means that responsiveness of quantity supplied is 2 times in comparison of the change in the price of the commodity. Hence, the elasticity of supply would be 2 in this case.
Let us see the formula of Elasticity of Supply-
The elasticity of supply is the ratio of the percentage change in quantity supplied to the percentage change in the price of
the commodity.
Or
Elasticity of Supply = Percentage change in quantity supplied/Percentage change in the price of the commodity.
Degrees or coefficients of elasticity of supply:
In response to the change in price, quantity supplied may change more or less than the change in the price of the commodity. Or the change in quantity supplied could be equal to the change in price.
This gives rise to the following degrees of elasticity of supply-
1. Perfectly Inelastic Supply: If there is no response in quantity supplied to the change in the price of the commodity then the elasticity of supply is said to be perfectly inelastic. It is the situation wherein the price changes but the quantity supplied remains constant. Hence elasticity of supply is equal to zero.
For example, let's say that the price of a product X changes by 5% but the quantity supplied doesn't change. This is an example of perfectly inelastic supply.
Elasticity of supply = Percentage change in qty supplied ÷ Percentage change in price
Hence in this case, Elasticity = 0% ÷ 5% = 0.
2. Inelastic supply: If responsiveness of quantity supplied is less than the change in the price of the commodity then the elasticity of supply is said to be inelastic or relatively inelastic. It is the situation wherein the percentage change in quantity supplied is less than the percentage change in price. Hence elasticity of supply is less than one.
Suppose a 10% change in the price of a product leads to only a 5% change in quantity supplied. This is an example of Inelastic Supply.
Elasticity of supply = Percentage change in qty supplied ÷ Percentage change in price
Hence in this case, Elasticity = 5% ÷ 10% = 0.5 which is less than 1
3. Unitary elastic supply: If responsiveness of quantity supplied is equal to the change in the price of the commodity then the elasticity of supply is said to be unitary elastic. It is the situation wherein the percentage change in quantity supplied is equal to the percentage change in price. Hence elasticity of supply is equal to one.
Suppose a 10% change in the price of a product leads to only a 10% change in quantity supplied. This is an example of a Unitary Elastic Supply.
Elasticity of supply = Percentage change in qty supplied ÷ Percentage change in price
Hence in this case, Elasticity = 10% ÷ 10% = 1
4. Elastic supply: If responsiveness of quantity supplied is more than the change in the price of the commodity then the elasticity of supply is said to be elastic or relatively elastic. It is the situation wherein the percentage change in quantity supplied is more than the percentage change in price. Hence elasticity of supply is more than one.
Suppose a 10% change in the price of a product leads to a 15% change in quantity supplied. This is an example of an Elastic Supply.
Elasticity of supply = Percentage change in qty supplied ÷ Percentage change in price
Hence in this case, Elasticity = 15% ÷ 10% = 1.5 which is more than 1%
5. Perfectly elastic supply: If the quantity supplied changes even though the price of the commodity remains unchanged then the elasticity of supply is said to be perfectly elastic. It is the situation wherein price remains constant but quantity supplied changes. Hence elasticity of supply is equal to infinite (as denominator will be zero in the formula of elasticity of supply). It is an imaginary condition.
Also refer - Demand
However, it does not tell us likely percentage change in quantity supplied in response to a percentage change in the price of a commodity. In other words, it won't tell you how much will the percentage change in quantity supplied in response to a certain percentage change in the price of a commodity
On the other hand, the elasticity of supply shows the magnitude of change in quantity supplied due to change in the price of a commodity. Hence elasticity of supply shows the quantum of change in quantity supplied in response to the change in the price of the commodity.
The elasticity of supply or price elasticity of supply shows the responsiveness of quantity supplied to the change in the price of a commodity.
For example, if the quantity supplied increases by 20% in the response to the 10% increase in price it means that responsiveness of quantity supplied is 2 times in comparison of the change in the price of the commodity. Hence, the elasticity of supply would be 2 in this case.
Let us see the formula of Elasticity of Supply-
The elasticity of supply is the ratio of the percentage change in quantity supplied to the percentage change in the price of
the commodity.
Or
Elasticity of Supply = Percentage change in quantity supplied/Percentage change in the price of the commodity.
Degrees or coefficients of elasticity of supply:
In response to the change in price, quantity supplied may change more or less than the change in the price of the commodity. Or the change in quantity supplied could be equal to the change in price.
This gives rise to the following degrees of elasticity of supply-
1. Perfectly Inelastic Supply: If there is no response in quantity supplied to the change in the price of the commodity then the elasticity of supply is said to be perfectly inelastic. It is the situation wherein the price changes but the quantity supplied remains constant. Hence elasticity of supply is equal to zero.
For example, let's say that the price of a product X changes by 5% but the quantity supplied doesn't change. This is an example of perfectly inelastic supply.
Elasticity of supply = Percentage change in qty supplied ÷ Percentage change in price
Hence in this case, Elasticity = 0% ÷ 5% = 0.
2. Inelastic supply: If responsiveness of quantity supplied is less than the change in the price of the commodity then the elasticity of supply is said to be inelastic or relatively inelastic. It is the situation wherein the percentage change in quantity supplied is less than the percentage change in price. Hence elasticity of supply is less than one.
Suppose a 10% change in the price of a product leads to only a 5% change in quantity supplied. This is an example of Inelastic Supply.
Elasticity of supply = Percentage change in qty supplied ÷ Percentage change in price
Hence in this case, Elasticity = 5% ÷ 10% = 0.5 which is less than 1
3. Unitary elastic supply: If responsiveness of quantity supplied is equal to the change in the price of the commodity then the elasticity of supply is said to be unitary elastic. It is the situation wherein the percentage change in quantity supplied is equal to the percentage change in price. Hence elasticity of supply is equal to one.
Suppose a 10% change in the price of a product leads to only a 10% change in quantity supplied. This is an example of a Unitary Elastic Supply.
Elasticity of supply = Percentage change in qty supplied ÷ Percentage change in price
Hence in this case, Elasticity = 10% ÷ 10% = 1
4. Elastic supply: If responsiveness of quantity supplied is more than the change in the price of the commodity then the elasticity of supply is said to be elastic or relatively elastic. It is the situation wherein the percentage change in quantity supplied is more than the percentage change in price. Hence elasticity of supply is more than one.
Suppose a 10% change in the price of a product leads to a 15% change in quantity supplied. This is an example of an Elastic Supply.
Elasticity of supply = Percentage change in qty supplied ÷ Percentage change in price
Hence in this case, Elasticity = 15% ÷ 10% = 1.5 which is more than 1%
5. Perfectly elastic supply: If the quantity supplied changes even though the price of the commodity remains unchanged then the elasticity of supply is said to be perfectly elastic. It is the situation wherein price remains constant but quantity supplied changes. Hence elasticity of supply is equal to infinite (as denominator will be zero in the formula of elasticity of supply). It is an imaginary condition.
Also refer - Demand
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