When does the elasticity of supply of commodity called equal to unity? pls answer
Answers
Answer:
The law of supply states the direct relationship between the price of a product and quantity supplied of the product.
In simple words, if the price of a product increases, the quantity supplied for the product also increases.
On the other hand, if there is fall in the price of a product, then the quantity supplied of the product would also decrease.
“The supply of a commodity is said to be elastic when as a result of a charge in price, the supply changes sufficiently as a quick response. Contrarily, if there is no change or negligible change in supply or supply pays no response, it is elastic”-Prof Thomas
However, it is not a quantitative statement. In practical implications, an organization needs to estimate the degree of change in the quantity supplied of a product with respect to change in the price of the product. The degree or extent of change in the quantity supplied of a product in response to change in the price of the product is known as the elasticity of supply.
According to Prof Thomas, “The supply of a commodity is said to be elastic when as a result of a charge in price, the supply changes sufficiently as a quick response. Contrarily, if there is no change or negligible change in supply or supply pays no response, it is elastic.” It can be calculated by dividing the percentage change in the quantity supplied with percentage change in the price of a product.
The formula for calculating elasticity of supply (eS) is as follows:
eS = Percentage change in quantity supplied/Percentage change in price
Explanation:
Following are different types of elasticity of supply:
i. Perfectly Elastic Supply:
Refers to a situation when the quantity supplied completely increases or decreases with respect to proportionate change in the price of a product. In such a case, the numerical value of elasticity of supply ranges from zero to infinity (eS = 00)This situation is imaginary as there is no as such product whose supply is perfectly elastic.
Therefore the situation does not have any practical implication. In such a case, the price remains constant as the price of a product does not affect the quantity supplied. Let us understand the concept of perfectly elastic demand with the help of an example.
Relatively Elastic Supply:
Refers to a condition when the proportionate change in the quantity supplied is more than proportionate change in the price of a product. In such a case, the numerical value of elasticity of supply is greater than one (eS>1) For example, if the quantity supplied increases by 30% with respect to 10% change in the price of a product, it is called relatively elastic supply. The concept of relatively elastic supply is explained with the help of an exampl