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Prepared by :

Dr. K. BARANIDHARAN

PROF.MBASRI SAIRAM INSTITUTE OF TECHNOLOGY

CHENNAI

ENGINEERING ECONOMICSAND

FINANCIAL ACCOUNTING

Sri Sairam Institute of Technology 2

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EngineeringEconomics& Financial

Accounting

E e f a315 August 2014

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Elasticity of s upply

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Types of elasticity

A)perfect elasticity or infinite elasticity of supply(Es = ) Any quantity can be supplied it a given price and

there is no need to increase the price On the other hand the firm can even stop the

supply completely.

But this situation is not found in the real worldand is only a hypothetical case. Curve: the shape of the line is horizontal and

parallel to the x-axisF

aculty of Business andEconomics (FBE), The IIPM,New Delhi

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Perfectly elasticity or infinite elasticity of supply

Faculty of Business andEconomics (FBE), The IIPM,New Delhi

Quantity suppliedO

X

Y

p

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PERFECTLY ELASTICITY OF SUPPLY

Faculty of Business andEconomics (FBE), The IIPM,New Delhi

price

OX

Y

Quantity suppliedQ

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UNITY ELASTICITY ((Es = 1)

The percentage change in

quantity supplied is equalto the percentage change

in priceFaculty of Business andEconomics (FBE), The IIPM,New Delhi

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RELATIVELY ELASTIC ((Es 1)

The elasticity of supply is greater than 1the supply is said to be elastic. If theprice increase by 10% the supplyincrease by more than 10%

Conversely, if the price falls by 10% thesupply falls by more than 10%

Faculty of Business andEconomics (FBE), The IIPM,New Delhi

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Es 1

Faculty of Business andEconomics (FBE), The IIPM,New Delhi

price

OXQuantity supplied

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RELATIVELY INELASTICITY SUPPLY(Es 1)

The % change in quantitysupplied is less than %change in price. Supply is

said to be inelasticity.

Faculty of Business andEconomics (FBE), The IIPM,New Delhi

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