Economics Elasticity Of Supply Questions Long
The concept of unitary elastic supply curve refers to a situation where the percentage change in quantity supplied is equal to the percentage change in price. In other words, it represents a supply curve with an elasticity of supply equal to 1.
The formula for unitary elastic supply curve can be expressed as:
Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)
When the elasticity of supply is equal to 1, it means that the quantity supplied is changing in the same proportion as the change in price. For example, if the price of a product increases by 10% and the quantity supplied also increases by 10%, then the supply curve is said to be unitary elastic.
Unitary elastic supply curve is often associated with a perfectly competitive market, where firms have no market power and are price takers. In this scenario, firms can easily adjust their production levels in response to changes in price, resulting in a proportional change in quantity supplied.
It is important to note that unitary elastic supply is just one of the possible elasticities of supply. Elasticity of supply can be greater than 1 (elastic supply) or less than 1 (inelastic supply) as well. The specific elasticity of supply depends on various factors such as the availability of inputs, production technology, time period, and the ability of firms to adjust their production levels.
Understanding the concept of unitary elastic supply curve is crucial for businesses and policymakers as it helps in predicting the responsiveness of quantity supplied to changes in price. It also aids in determining the optimal pricing and production strategies for firms and analyzing the impact of government policies on the supply side of the market.