3.12 : Degrees of Elasticity of Supply

The elasticity of supply (Es) comes in various degrees, each depicting how responsive the quantity supplied is to changes in price.

Perfectly elastic supply occurs when even the slightest price change leads to an infinite change in quantity supplied. It is represented as a horizontal supply curve. Conversely, perfectly inelastic supply means the quantity supplied remains constant regardless of price changes. This is depicted as a vertical supply curve. When Es exceeds, supply is considered elastic, indicating that the quantity supplied changes more than proportionately to changes in price. The curve is relatively flat. When Es is less than 1, supply is inelastic, meaning the quantity supplied changes less than proportionately to changes in price, yielding a steeper curve. Unitary elastic supply (Es = 1), indicates that quantity supplied changes in exact proportion to price changes. The slope of the unitary elastic supply curve may be steeper or flatter depending upon the relative scale of the units that appear on the x and y axis. What is important is that the ratio of the two changes must be exactly the same.

Understanding these degrees of Es helps businesses predict market responses to price changes and make informed production and pricing decisions.