There are 2 Types of Elasticity

1. Elasticity of Demand - Price Elasticity of Demand, Income Elasticity of Demand and Cross Elasticity of Demand
2. Elasticity of Supply - Price Elasticity of Supply

What is 'Elasticity'

This is a measure of the degree of responsiveness of the change in one variable to changes in another variable.

Price Elasticity of Supply

Formula:

$$ P.E.S. = \frac{Percentage \space change \space in \space Quantity \space Supplied}{Percentage \space change \space in \space Price} $$

Symbolically,

$$ \text{P.E.S.} = \frac{\text{%}\Delta Q_s}{\text{%}\Delta P} \times 100 $$

When worked arithmetically, this simplifies into: $$ \text{P.E.S.} = \frac{\Delta Q_s}{Q_s} \times \cfrac{P}{\Delta P} $$

Categories of Price Elasticity of Supply

Elastic Supply

• When supply is elastic, the percentage change quantity supplied is greater than the percentage change in price.
• When supply is elastic, the supply curve is flat or gently sloping and intercept the y-axis.
• $ 1 < P.E.S. < \infty $

Inelastic Supply

• When supply is inelastic, the percentage change in price is greater than the percentage change in quantity supplied.
• When supply is inelastic, the supply curve is steeply sloping and intercept the x-axis.
• $ 0 < P.E.S. < 1 $

Unitary Supply

• When supply is unitary, the percentage change in price is equal to the percentage change in quantity supplied.
• When supply is unitary, the supply curve goes through the origin.
• $ P.E.S. = 1 $

Perfectly Elastic Supply

• When supply is perfectly elastic, the percentage change in quantity supplied is unaccompanied by any percentage change in price.
• When supply is perfectly elastic, the supply curve is parallel to the x-axis but perpendicular to the y-axis.
• $ P.E.S. = \infty $

Perfectly Inelastic Supply

• When supply is perfectly inelastic, the percentage change in price is unaccompanied by any percentage change in quantity supplied.
• When supply is perfectly inelastic, the supply curve is parallel to the y-axis but perpendicular to the x-axis.
• $ P.E.S. = 0 $

Determinants of Price Elasticity of Supply

1. Time - Price Elasticity of Supply increases with time. That is; in the long run supply is more elastic while in the short run supply is more inelastic.

2. Factor Mobility - The ease with which factors of production can be moved from one use to another will affect the elasticity of supply. Supply is elastic, when there is greater factor mobility. The converse holds true.

3. Risk Taking - The more willing entrepreneurs are to take risks, the greater will be the elasticity of supply, i.e. more elastic. The converse holds true.

4. Availability of Spare Capacity of a Firm - Supply is more elastic, when there is a greater availability of space capaciry of unemployed resources. Supply is more inelastic at full employment or when there is little or no space capacity (i.e. all resources are fully employed)

5. Number of Firms in the Industry - The greater the number of firms in an industry, the greater will be the price elasticity of supply i.e. supply is more elastic. The converse holds true.