What is the elasticity of supply explain the types of elasticity of supply
Elasticity of supply refers to the degree of responsiveness of the quantity supplied of a good or service to changes in its price. It measures how the quantity supplied changes in response to a change in price.
There are three main types of elasticity of supply:
1. Elastic supply: When the supply of a good or service is elastic, it means that the quantity supplied changes significantly in response to a change in price. In other words, producers are able to quickly adjust their production levels in response to changes in market conditions. This type of elasticity is often seen in industries where production can be easily ramped up or down, such as the technology industry.
2. Inelastic supply: In contrast, when the supply of a good or service is inelastic, it means that the quantity supplied does not change much in response to a change in price. This can occur when production capacity is fixed or constrained, or when it takes a long time to increase or decrease production levels. Inelastic supply is often seen in industries with limited resources or infrastructure, such as oil production.
3. Unitary supply: Unitary supply refers to a situation where the percentage change in quantity supplied is equal to the percentage change in price. In other words, supply is perfectly responsive to changes in price. This type of elasticity is relatively rare in practice.
Understanding the elasticity of supply is important for producers, consumers, and policymakers as it helps to predict how changes in price will affect the quantity of goods or services available in the market.