Question

a. Assume that a business firm supplied 450 units at price Rs 4500.The firm has decided to
increase the price of the product to Rs 5500. Consequently, the supply of the product is
increased to 600 Units. Calculate the elasticity of supply.

Answer 1

Answer:

P = 4500 ΔP = 1000 (a fall in price; 5500– 4500 = 1000)

S = 450 units

ΔS = 150 (600 – 450)

By substituting these values in the above formula, we get:

es = 150/1000 x 4500/450 = 1.5

Answer 2

Concept:

Elasticity of Supply-

• The elasticity of supply establishes a quantitative relationship between a commodity's supply and its price.
• As a result, we can use the concept of elasticity to express the numerical change in supply with the change in the price of a commodity.
• Es = (ΔQ /ΔP) x (P / Q)
• Elasticity of supply depicts the positive relationship between the price and the unit supplied of a commodity.

Given:

• P1 = 450
• Q1 =4500
• P2 =600
• Q2 =5500

Find:

Calculate Elasticity of Supply.

Solution:

We know,

Es = (ΔQ /ΔP) x (P1 / Q2)

Es = (1000/150) x (450/4500)

Es = 0.6667

Hence, we can conclude that when the price of a unit changes, the quantity of the unit changes by 66.67%.

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