Economics Elasticity Of Supply Questions Long
There are three main types of supply elasticity: price elasticity of supply, income elasticity of supply, and cross elasticity of supply.
1. Price Elasticity of Supply (PES): Price elasticity of supply measures the responsiveness of the quantity supplied to a change in price. It indicates how much the quantity supplied changes in response to a change in price. PES can be elastic, inelastic, or unitary.
- Elastic supply: When the percentage change in quantity supplied is greater than the percentage change in price, supply is said to be elastic. In this case, suppliers are highly responsive to price changes, and a small change in price leads to a relatively larger change in quantity supplied.
- Inelastic supply: When the percentage change in quantity supplied is less than the percentage change in price, supply is said to be inelastic. In this case, suppliers are not very responsive to price changes, and a large change in price leads to a relatively smaller change in quantity supplied.
- Unitary supply: When the percentage change in quantity supplied is equal to the percentage change in price, supply is said to be unitary elastic. In this case, suppliers are proportionally responsive to price changes, and a change in price leads to an equal percentage change in quantity supplied.
2. Income Elasticity of Supply (IES): Income elasticity of supply measures the responsiveness of the quantity supplied to a change in income. It indicates how much the quantity supplied changes in response to a change in income. IES can be positive, negative, or zero.
- Positive income elasticity: When the percentage change in quantity supplied is greater than the percentage change in income, supply is said to have a positive income elasticity. In this case, suppliers are responsive to changes in income, and an increase in income leads to an increase in the quantity supplied.
- Negative income elasticity: When the percentage change in quantity supplied is less than the percentage change in income, supply is said to have a negative income elasticity. In this case, suppliers are not responsive to changes in income, and an increase in income leads to a decrease in the quantity supplied.
- Zero income elasticity: When the percentage change in quantity supplied is equal to the percentage change in income, supply is said to have zero income elasticity. In this case, changes in income do not affect the quantity supplied.
3. Cross Elasticity of Supply (CES): Cross elasticity of supply measures the responsiveness of the quantity supplied of one good to a change in the price of another good. It indicates how much the quantity supplied of one good changes in response to a change in the price of another good. CES can be positive, negative, or zero.
- Positive cross elasticity: When the percentage change in quantity supplied of one good is greater than the percentage change in the price of another good, supply is said to have a positive cross elasticity. In this case, the two goods are substitutes, and an increase in the price of one good leads to an increase in the quantity supplied of the other good.
- Negative cross elasticity: When the percentage change in quantity supplied of one good is less than the percentage change in the price of another good, supply is said to have a negative cross elasticity. In this case, the two goods are complements, and an increase in the price of one good leads to a decrease in the quantity supplied of the other good.
- Zero cross elasticity: When the percentage change in quantity supplied of one good is equal to the percentage change in the price of another good, supply is said to have zero cross elasticity. In this case, the two goods are unrelated, and changes in the price of one good do not affect the quantity supplied of the other good.