How can supply be relatively elastic?

1 Answer
Aug 9, 2015

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

Explanation:

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%(454)×100=25%

The percentage change in quantity supplied is ((100 -150)/100) xx100 = 50%(100150100)×100=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%)