SS2 First Term Economics Lesson Note – Elasticity of Supply: Equilibrium of Demand and Supply

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WEEK 6

ELASTICITY OF SUPPLY; EQUILIBRIUM OF DEMAND AND SUPPLY

Content

1. Elasticity of Supply
2. Factors Determining Elasticity of Supply
3. Determination of Equilibrium Price and Quantity
4. Effects of Changes in Demand and Supply on the

Equilibrium Price and Quantity

Sub-topic One:  Elasticity of Supply

Just as it is with demand, there also exists what we called Elasticity of Supply. Elasticity of Supply is the degree of responsiveness of the supply of a commodity to changes in price. If a change in price causes more than a proportionate change in supply, then supply is elastic. But if a change in prices causes a less than a proportionate change in supply, then supply is inelastic.

1. Degrees of Elasticity of Supply
2. Elastic Supply
3. Inelastic Supply
4. Unitary Elastic Supply
5. The Two Abnormal Elasticity of Supply
6. Perfectly Elastic Supply
7. Perfectly Inelastic Supply

We shall illustrate all of these graphically, just as the case with demand

1. Elastic Supply: This is when change in price causes more than a proportionate change in supply. It is illustrated thus: (see diagram)
2. Inelastic Supply: This is when change in price causes less than a proportionate change in supply.   It is illustrated thus: (see diagram)
3. Unitary Elastic Supply: This is when change in price leads to the same proportional change in supply.   It is drawn as follows: (see diagram)
4. Perfectly Elastic Supply: This is when the quantities supplied remains constant irrespective of increase or decrease in price.   It is drawn as follows: (see diagram)
5. Perfectly Inelastic Supply: this is a situation in which suppliers supply all the quantities they have at the prevailing price, but no more at any price below or above it. It is also drawn as follows: (see diagram)

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