Unit elasticity of supply, Managerial Economics

Unit Elasticity of Supply

Supply is said to be of unit elasticity if changes in price bring about changes in quantity supplied in the same proportion.  Thus, when price rises, quantity supplied increases in the same proportion, and when price falls, quantity supplied falls in the same proportion.  The supply curve is a straight line through the origin, and the elasticity of supply is equal to one or unity.

When price rises from P1 to P2, quantity supplied increases in the same proportion from q1 to q2.  This is the case of a commodity of which there is a fair amount of stocks or which can be produced within a fairly short period of time.

Conversely, when price falls from P2 to P1, quantity supplied falls in the same proportion from q2 to q1.  This is the case of a commodity which is fairly easily stockable, e.g. dry foods, like dry beans and dry maize.

Posted Date: 11/27/2012 6:50:25 AM | Location : United States

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