Question

which of the following measures of price elasticity shows elastic supply
a. Zero
b. 0.5
c 1.5
d. 0.1

Answer 1

Dear Student,

1. Perfectly inelastic supply (Es = 0) :

When quantity supplied remains unchanged in response to the change in the price of the commodity, the supply for that commodity is said to be “Perfectly inelastic”. In such case, the elasticity of supply is equal to zero. (Es =0). As a result, the supply curve becomes parallel to Y-axis.

2. Less than unit elastic supply (Es <1) :

When percentage (%) change in quantity supplied is less than the percentage (%) change in price, the supply for the commodity is said to “Less than unit elastic or relatively inelastic”. Graphically, the supply curve is steeper and this type of elasticity generally happens in case of compulsory goods.

3. More than unit elastic supply (Es >1) :

When percentage (%) change in quantity supplied is more than the percentage (%) change in price, the supply for the commodity is said to be “More than unit elastic or highly elastic”. Graphically, the supply curve is flatter and this type of elasticity generally happens in the case of luxury goods.

It can be inferred from above that 0.5, 1.5 and 0.1 exhibit elasticity and are called elastic supply. However comparing the 3 options as above, 1.5 is more elastic than 0.1 & 0.5.

Regards,