Economics Elasticity Of Supply Questions Medium
Elasticity of supply in economics refers to the responsiveness of the quantity supplied of a good or service to changes in its price. It measures the percentage change in quantity supplied in response to a percentage change in price. In other words, it quantifies how sensitive the quantity supplied is to changes in price.
The formula to calculate the elasticity of supply is:
Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)
There are three types of elasticity of supply:
1. Elastic Supply: When the percentage change in quantity supplied is greater than the percentage change in price, the supply is said to be elastic. In this case, a small change in price leads to a relatively larger change in quantity supplied.
2. Inelastic Supply: When the percentage change in quantity supplied is less than the percentage change in price, the supply is said to be inelastic. In this case, a change in price has a relatively smaller effect on the quantity supplied.
3. Unitary Elastic Supply: When the percentage change in quantity supplied is equal to the percentage change in price, the supply is said to be unitary elastic. In this case, the change in price has an equal effect on the quantity supplied.
The elasticity of supply is influenced by various factors such as the availability of inputs, production technology, time period, and the mobility of resources. Understanding the elasticity of supply is crucial for businesses and policymakers as it helps in predicting how changes in price will affect the quantity supplied and, consequently, the market equilibrium.