ECO401 New GDB

[athar1984]

The elasticity of supply measures the percentage change in the quantity supplied of a commodity as a result of percentage change in its price. It is a pure number and is positive because price and quantity move in the same direction. In general, percentage change in elasticity is used instead of absolute change in elasticity. The slope of supply is an unsatisfactory measure of the responsiveness in the quantity supplied of a commodity with respect to the change in its price but the concept of elasticity of supply has overcome this difficulty.



With reference to the above scenario, why is the slope of supply an unsatisfactory measure of the responsiveness in the quantity supplied of a commodity to a change in its price?

[Xpert]

The require solution is :
The elasticity of supply measures the responsiveness the quantity

supplied to a change in the price of that commodity.

Because supply curves slope upwards, the elasticity of supply is

positive. As we move along a supply curve, positive price changes

are associated with positive output changes. An increase in price

causes an increase in quantity sold. The more elastic is supply the

larger the percentage increases in quantity supplied in response to a

given percentage change in price. Thus elastic supply curves are

relatively flat and inelastic supply curves relatively steep.

There are important special cases. If the supply curve is vertical, -the

quantity supplied does not change as prices changes- elasticity of

supply is zero. A horizontal supply curve has an infinitely high

elasticity of supply: A small drop in price would reduce the quantity

producers are willing to supply from an indefinitely large amount to

zero.