Question

Identify and define the degree of price elasticity of supply from the diagram for the supply curves S₁, S₂, S₃, S₄.

Answer 1

(1) Perfectly Inelastic Supply : When there is no change in quantity supplied in response to any price change, the supply is said to be perfectly or completely inelastic. 

Here, ∈_s = 0

(ii) Unit Elastic Supply: When proportionate change in supply equals the proportionate change in price, the supply is said to be unit elastic. 

Here, ∈_s = 1

(iii) Elastic Supply: When change in quantity supplied is more than proportionate change in own price, the supply is said to be elastic. 

Here, ∈_s > 1

(iv) Inelastic Supply : When the change in quantity supplied is less than proportionate change in own price, supply is said to be inelastic. 

Here, ∈_s < 1 .