The proportional change in quantity supplied due to a proportional change in the price of a good or service is called elasticity of supply.” Symbolically,

Mathematically speaking, if we divide the marginal supply function

by the average supply function (Qs/P), we find price elasticity of supply.

Marginal supply function or slope of supply function; and

Qs/P = Average supply function

It means that the elasticity of supply is the product of marginal supply function and average supply function. Hence elasticity of supply is something more than a slope of the supply function. The slope of supply function indicates a change in Qs due to change in price whereas price elasticity of supply indicates a proportional change in Qs due to the proportional change in price.

Lord Kelvin, a well known English scholar, says that:

“Your knowledge is of meager and unsatisfactory kind if you cannot measure what you are speaking about.”

The concept of elasticity of supply plays a pivoting role in various economic decisions. We must have some measuring – rods to measure the elasticity of supply to reflect our sound knowledge about this concept.

The measurement of elasticity of supply revolves around the yardstick of “unity” introduced by Marshall. Marshall is of the view that general possibilities of elasticity of supply (Es) can be discussed as under.

- Es = 1
- Es > 1
- Es < 1

We can measure elasticity of supply by the following methods:

- Total revenue method
- Percentage method
- Arithmetic method; and
- Geometric method

## Total Revenue Method

Case – i

### Es = 1

Here we observe that there are equal proportional changes both in price and quantity supplied. Moreover, we have a normal supply curve which is neither steeper nor flatter.

Case – ii

### Es > 1

If a positive relationship between price and Qs appears when proportional changes in quantity supplied is greater than the proportional change in price, the elasticity of supply is greater than unity. It is explained in the following table and diagram

Case – iii

### Es < 1

If a positive relationship between price and Qs appears when proportional changes in quantity supplied is less than proportional change in price, the elasticity of supply is less than unity. It is explained in the following table and diagram

Here we observe that proportional change in quantity supplied is less than proportional change in price due to which SS curve is steeper.

It should be noted here that it is only the nature of proportionality which makes the difference regarding the nature of elasticity.

As far as the relationship between price and total revenue is concerned, it remains positive in all the cases.

## Percentage Method

Case – i

### Es = 1

If the percentage change in quantity supplied is equal to the percentage change in price, it is the indication that Es = 1.

For example

if there is a 10% change in Qs due to a 10% change in price, Es=1. We find E_{s} by the following formula.

Case – ii

### Es > 1

If percentage change is Q_{s} is greater than the percentage change in price, Es > 1.

For example

if a 10% change in price leads to a 20% change in Q_{s}, Es > 1

we find it by the given formula.

Es = 20% / 10% =2> 1

Case – iii

### Es < 1

If the percentage change in Qs is less than the percentage change in price, Es < 1. Let 10% change in price leads to a 5% change in Q_{s}, now Es < 1.

## Arithmetic Method

Case – i

### Point Elasticity

The elasticity of supply at a particular point of the supply curve is known as point elasticity. [ Prof. Marshall introduced the concept of point elasticity ]. This situation appears when there are so minor changes in price and Qs that two points on the supply curve apparently look like one point. In such a case, we measure price elasticity of supply by the following formula

For normal goods, the slope is positive;

hence Es always appears with a positive sign.

Case – ii

### Arc Elasticity

Arc elasticity is an average elasticity of supply between two distinctive points on the supply curve due to remarkable changes in price and quantity supplied. We measure arc elasticity of supply by the following formula

## Geometric Method

Case – i

### Straight Line Supply Curve

We extend the given supply curve and if it intersects the origin

it reflects Es = 1, if it intersects vertical axis,

it indicates Es > 1 and if it intersects the horizontal axis

it represents Es < 1. For confirmation, see the figures.

In extreme cases, the SS curve is vertical

when Es = 0. On the other hands, SS is horizontal when

Case – ii

### Arc Supply Curve

We draw a tangent line at the point where we are interested to find an elasticity of supply and extend this tangent line;

if it intersects the origin

Es = 1, if it intersects vertical axis

Es > 1 if it intersects horizontal axis

Es < 1, if it is a vertical line.

E_{s} = 0 and if it is a horizontal line

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