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Types of Elasticity of Supply

beingeconomist, types of elasticity of supply

Before we are going to discuss the types of elasticity of supply I recommend you to study elasticity in economics and types of elasticity of demand for clear building of your concept.

Supply means the provision of goods by the businesses against their price. In simple words, supply shows the availability of product or quantity supplied in the market against the market prevailing market price. With the change in the price level, the quantity supplied changes.

Quantity supplied means the willingness of the supplier to supply a product on any specific price level.

Many people confused between the types of elasticity of supply and demand, they thought that measurement of elasticity i.e. Perfectly Elastic, Relatively Elastic, Constant, Relatively Inelastic, and Perfectly Inelastic are the types of elasticity of supply and demand. Although they are types of both concepts but they are secondary types of elasticity of supply and demand while others are primary types of elasticity of supply and demand.

The types of elasticity of demand are income elasticity, price elasticity, and cross elasticity and the same is the case with the types of elasticity of supply. Mostly two types of elasticity of supply i.e. price elasticity of supply and cross elasticity of supply have been discussed but here we include the income elasticity of supply too.

Primary Types of Elasticity of Supply

  1. Price Elasticity of Supply
  2. Cross Elasticity of Supply
  3. Income Elasticity of Supply

Price Elasticity of Supply

Price elasticity of supply is defined as the change in the quantity supplied due to change in the price level of responsiveness of quantity supplied because of a change in price. It is also defined as the ratio of the percentage change in quantity supplied to the percentage change in the change of price.

The price elasticity of supply will always be positive because of the law of supply and this positive sign shows the positive relationship between price and quantity supplied.

If the supply of any commodity is elastic then the producer can increase the supply without an increase in the cost or time.

If the supply of any commodity is inelastic then producer needs time with an increase in the cost to increase the supply.

Price Elasticity of Supply Formula

The formula of price elasticity of supply is the ratio between percentage change in the quantity supplied and percentage change in the price level.

Q1= Initial Quantity Supplied

Q2= New Quantity Supplied

P1= Initial Price Level

P2= New Price Level

Example of Price Elasticity of Supply

price elasticity of supply, types of elasticity of supply

Let take an example of hair shampoo, as represented by the above table, with the increase in the price of shampoo its quantity supplied increases, which represent the willingness of supplier for the supply of shampoo because the more he sold the more get earn a profit.

At the first stage, the price of shampoo is 5$ and supply is 525 units when the price increases to 7$ the quantity supplied also increases to 725 units and it goes on. The formula of price elasticity of supply enables us to compare any two stages of the scenario. We are going to check the elasticity between the first two stages. Now, put the values in the formula to get the results.

price elasticity of supply, types of elasticity of supply

The value of price elasticity of demand shows that it is almost unitary elastic, which means the supply of shampoo is not very sensitive to its price.

Cross Elasticity of Supply

Cross elasticity of supply is defined as the increase in the supply of a product due to a decrease in the price of any other product, which leads to a decline in the supply of other product. In simple words, cross elasticity of supply tells us the increase in the supply of product A due to a decrease in the price of product B. This concept is similar to the cross elasticity of demand.

Cross elasticity of supply is defined as the increase in the supply of a product due to a decrease in the price of any other product, which leads to a decline in the supply of other product. In simple words, cross elasticity of supply tells us the increase in the supply of product A due to a decrease in the price of product B. This concept is similar to the cross elasticity of demand.

This type of elasticity of supply mainly depends upon the price of other products. Cross elasticity handle substitutes and complementary products. Let take an example of wheat and rice, both are substitutes to each other when the price of wheat increases then its supply increases while the demand for rice increases because when the price of wheat increases people will divert to use the rice. Hence, the supply of wheat will increase in the long term.

Cross Elasticity of Supply Formula

The formula of cross elasticity is the ratio between the percentage change in the quantity supplied of product A and the percentage change in the price of product B.

types of elasticity of supply, cross elasticity of supply

Income Elasticity of Supply

Income elasticity of supply is defined as the responsiveness of quantity supplied because of change in the price level. This type of elasticity of demand always shows a positive sign.

Secondary Types of Elasticity of Supply

There are 5 secondary types of elasticity of supply which are enlisted below.

  1. Perfectly Elastic Supply
  2. Relatively Elastic Supply
  3. Unitary Elastic Supply
  4. Relatively Inelastic Supply
  5. Perfectly Inelastic Supply

Perfectly Elastic Supply

Perfectly elastic supply shows that the 1 unit change in the price of product leads to unlimited or infinity change in the quantity supplied is known as perfectly elastic supply. The perfectly elastic supply curve is hereunder.

perfectly elastic supply curve

Relatively Elastic Supply

Relatively elastic supply shows that the 1 unit change in the price of product leads to more than 1 unit change in the quantity supplied is known as relatively elastic supply. Below is the relative elastic supply curve.

relatively elastic supply curve

Unitary Elastic Supply

Unitary elastic supply represents that 1 unit change in the price caused 1 unit change in the quantity supplied. Its curve is given below.

unitary elastic supply curve

Relatively Inelastic Supply

The 1 unit change in the price of any product caused less than 1 unit change in the quantity supplied is known as relatively inelastic supply. The relatively inelastic supply curve is drawn below.

relatively inelastic supply curve

Perfectly Inelastic Supply

No change occurred in the quantity supplied of any product with the change in its price level is known as a perfectly inelastic supply. The perfectly inelastic supply curve is sketched below.

perfectly inelastic supply curve

Determinants or Factors Affecting Types of Elasticity of Supply

There are many factors that are affecting the types of elasticity of supply but most important of them are listed below.

  1. Type of Products
  2. Technological Changes
  3. Production Capacity of Industry
  4. Implementation of Laws of Returns

Type of Products

Perishable products like milk, fruit, eggs, meat, and vegetables are not been stored that’s why their elasticity of supply is inelastic. While durable products like sugar, clothes, and radio are storable so their elasticity of supply is elastic.

Technological Changes

If any country technology is going advance and new ways of production are invented than the supply of commodities increases. Therefore, the elasticity of supply is relatively elastic.

Production Capacity of Industry

If any industry which is not working on its efficient level then it is possible to increase the supply by the increase in the production, so in this case, the elasticity of supply is relatively elastic. On the other hand, if the industry is already working on its efficient level then it is not possible to increase the supply so the elasticity of supply, in this case, will be relatively inelastic.

Implementation of Laws of Return

The production of any commodity goes through three phases of production i.e. increasing return, decreasing return, and constant return. If production is in the phase of increasing return then it is beneficial to increase the production and, in this case, the elasticity of supply will be relatively elastic. While if the production is in the phase of decreasing return then an increase in production will not be beneficial so, in this case, the elasticity of supply will be relatively inelastic.

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