question_answer

Define Price Elasticity of Supply\[{{E}_{_{S}}}\].Briefly explain the methods of measuring it. Or Briefly explain the various degrees of Price Elasticity of Supply and draw the diagram of unitary elastic supply curve.

Answer:

Price elasticity supply is the degree of responsiveness in quantity supplied due to change in the price of the product. Price elasticity of supply can be measured by using the following methods : 1. Percentage Method (or Proportional Method) By this method, Elasticity of supply\[({{E}_{s}})\] \[=\frac{Percentage\,change\,in\,quantity\,\sup plied}{Percentage\,change\,in\,price}\] or         \[=\frac{\Delta Q}{Q}\times 100+\frac{\Delta P}{P}\times 100\] or         \[=\frac{\Delta Q}{Q}\times \frac{P}{\Delta P}\] or         \[=\frac{\Delta Q}{\Delta P}\times \frac{P}{Q}\] Where P and Q = Original price and original quantity respectively \[\Delta P\] and \[\Delta Q\]  = Change in price and change in quantity respectively                   2. Geometric Method By this method, elasticity of supply depends upon the 'origin' or 'starting' of supply curve. Following conclusions can be drawn from this method: (i) If supply curve is positively sloped upward curve arising from origin, then elasticity of supply is equal to 1. (ii) If supply curve is positively sloped upward curve arising from V-axis, then elasticity of supply is greater than 1. (iii) If supply curve is positively sloped upward curve arising from X-axis, then elasticity of supply is less than 1.                Or Various degrees of price elasticity of supply are as follows: (i) Perfectly Inelastic Supply\[({{E}_{s}}=0)\] When supply of a commodity does not change, irrespective of any change in its price, it is called perfectly inelastic supply. In this condition, supply curve will be a straight line parallel to Y-axis. CD (ii) Perfectly Elastic Supply\[({{E}_{s}}=\infty )\] Supply of a commodity is said to be perfectly elastic when its supply expands or contracts to any extent without any change in the price. In this condition, supply curve will be a straight line parallel to X-axis. (iii) Unit Elastic Supply\[({{E}_{s}}=1)\] If percentage change in supply is equal to percentage change in price, it is called unit elastic supply. In this condition, supply curve is a straight line passing through the origin. This curve can be shown as follows: (iv) Inelastic or Less than Unit Elastic Supply\[(Es<1)\] When percentage change in quantity supplied is less than percentage change in price, it is called inelastic supply. In this condition, the straight line supply curve intersects the X-axis in its positive range.  (v) Elastic or More than Unit Elastic Supply\[(Es>1)\] When percentage change in supply is more than the percentage change in price, it is called more than unit elastic supply In this condition, the straight line supply curve intersects the Y-axis in its positive range.