Question

Following schedule shows cases $A$ and $B$ of change in quantity supplied in response to change in price.

Price (Rs.)	Quantity Supplied (A)	Quantity Supplied (B)
$1$ $2$ $3$ $4$ $5$	$20$ $40$ $60$ $80$ $100$	$0$ $20$ $40$ $60$ $80$

(i) Calculate elasticity of supply when price rises from $RS.2$ to $Rs.3$ both in case $A$ and $B$.
(ii) Why do supply elasticity differ in two cases even though absolute change in quantity supplied is $20$ units in both the cases?

Answer 1

(i) Case A : $P=Rs.2;P_1=Rs.3;△P=P_1-P=Rs.3-Rs.2=Rs.1$
$Q=40;Q_1=60;△Q=Q_1-Q=60-40=20$
Elasticity of supply $\left(E_S\right)=\frac{P}{Q}\times \frac{△Q}{△P}=\frac{2}{40}\times \frac{20}{1}=1\left(unity\right)$
Case B : $P=Rs.2;P_1=Rs.3;△P=P_1-P=Rs.3-Rs.2=Rs.1$
$Q=20;Q_1=40;△Q=Q_1-Q=40-20=20$
(i) Elasticity of supply is equal to unity in case ${}^{\prime }{A}^{\prime }$.
Elasticity of supply is greater than unity in case ${}^{\prime }{B}^{\prime }$.
(ii) The elasticity of supply differs in both cases due to the difference in the percentage change in the quantity supplied which is $\frac{20}{40}\times 100=50$ per cent in case A, and $\frac{20}{20}\times 100=100$ per cent in case B.