How can supply be relatively elastic?

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Answer 1 · 2015-08-09T08:29:01

Supply becomes relatively elastic, when the percentage change in quantity supplier is greater than the percentage change in price.

Let us assume -

When price goes up from $.4 to $.5 the quantity supplied moves up from 100 units to 150 units.

The percentage change in price is #((4 -5)/4) xx100 = 25%#

The percentage change in quantity supplied is #((100 -150)/100) xx100 = 50%#

Elasticity of supply = #( % Delta Q) /(% Delta P)# = #50/25# = 2

Supply is relatively elastic because -

1 Elasticity of supply = 2 > 1

2 The percentage change in quantity supplied is greater than the percentage change in price. (50% > 25%)