Price Elasticity of Supply on a Graph - Online Tutor, Practice Problems & Exam Prep

Supply curves exhibit varying elasticities, ranging from perfectly elastic to perfectly inelastic. A perfectly elastic supply curve is horizontal, indicating a price elasticity of supply greater than 1. As the curve becomes steeper, it transitions through elastic, unit elastic (cutting through the origin), and inelastic stages, ultimately standing vertical for perfectly inelastic supply. Understanding these concepts is crucial for analyzing market dynamics, including equilibrium price, excess supply, and the implications of economic profits and losses in different market structures.

Price Elasticity of Supply on a Graph

Now let's see supply curves with different elasticities on the graph. So just like before, right, we're going to start here with perfectly elastic, and we've got this horizontal line just like we did when we were talking about price elasticity of demand. Right? We got a horizontal line for perfectly elastic. I had that silly little example to help you remember. Right? Oh, I'm feeling elastic. I feel so perfectly elastic. I'm laying in my bed. I'm super elastic right now. Perfectly elastic. I'm laying in my bed. I'm super elastic right now, right. That's when we have this horizontal line, and it works for supply just as it did with demand. The only difference you're going to see here as we move through the supply curves is the way we rotate here, right. So, we started, remember with demand, we started with a perfectly elastic where we were laying down, right? We had the horizontal line and we started to move this way, right? Perfectly elastic, elastic, unit elastic, inelastic, all the way to perfectly inelastic. Right? The only difference now, and that was because we had downward slopes, right, downward slopes on the demand curve, the supply curve slopes upward. So we're going to do the same thing except the other way. We start perfectly elastic and we're going to start going this way, right. Perfectly elastic, elastic, unit elastic, inelastic, all the way to perfectly inelastic standing up. Right? So it's going to be the same thing, just the way we rotate is different because supply curves slope upward. So let's go ahead and see what's happening here.

From perfectly elastic here to elastic, a good way to remember this, this is the way I do it, is you just look at which axes the line cuts through. So here we have a, if this is our price axis and our quantity axis, it's cutting through the price axis. When it cuts the price axis, that is when it's elastic, right? That's when we're going to have cuts price axis is what I meant to write. That's when we have an elastic supply, price elasticity of supply that's greater than 1. Alright.

So let's keep on going here with unit elastic. This is where it cuts through the origin, right? So notice if we extend this line out it's going to cut right here through the origin, right where the price and quantity axes meet, right? So I'm going to write, here cuts through origin and notice this is a unit elastic supply, but so is this. If I had a supply like this, as long as it's cutting through the origin. Right, if I have the line like this cutting through the origin or this way cutting through the origin, those are still unit elastic. Right? As long as it cuts through the origin, it is going to be unit elastic. Alright, now let's go with inelastic. Inelastic, now we're cutting through the quantity axis, right. Now see where the line cuts right here and notice how we're getting steeper and steeper too, right. So we've got our price axis, our quantity axis, and it cuts quantity axis, I'm going to write. Right?

And then finally our perfectly inelastic where we're standing straight up again, right, just like we had with demand, except this time I guess it's kind of silly because we're kind of getting up the other way, right? So like our heads are going to be, I don't know, we're going to be upside down at the end, something like this. So it's a little sillier in this case I guess, but the idea remains the same. Perfectly elastic, we're laying down, and we're making our way from here up to here, right. So that is what the different supply curves are going to look like on the graph. Let's go ahead and move on.

Here’s what students ask on this topic:

What is the price elasticity of supply and how is it represented on a graph?

Price elasticity of supply (PES) measures how much the quantity supplied of a good responds to a change in its price. It is represented on a graph by the slope of the supply curve. A perfectly elastic supply curve is horizontal, indicating an infinite response to price changes. As the curve becomes steeper, it transitions through elastic (PES > 1), unit elastic (PES = 1, cutting through the origin), and inelastic (PES < 1) stages, ultimately standing vertical for perfectly inelastic supply (PES = 0). Understanding these curves helps analyze market dynamics, including equilibrium price and excess supply.

How do you differentiate between elastic and inelastic supply curves on a graph?

Elastic and inelastic supply curves can be differentiated by their slopes on a graph. An elastic supply curve is less steep and cuts through the price axis, indicating a high responsiveness to price changes (PES > 1). In contrast, an inelastic supply curve is steeper and cuts through the quantity axis, showing low responsiveness to price changes (PES < 1). A unit elastic supply curve cuts through the origin, indicating proportional responsiveness (PES = 1). Recognizing these differences is crucial for understanding how suppliers react to price changes in the market.

What does a perfectly inelastic supply curve look like and what does it signify?

A perfectly inelastic supply curve is vertical, indicating that the quantity supplied does not change regardless of price changes. This signifies that suppliers cannot increase or decrease the quantity supplied in response to price fluctuations. This scenario is rare and typically applies to goods with fixed supply, such as unique artworks or certain natural resources. Understanding perfectly inelastic supply helps in analyzing situations where supply constraints are rigid, affecting market equilibrium and pricing strategies.

How does the concept of unit elastic supply appear on a graph?

Unit elastic supply appears on a graph as a supply curve that cuts through the origin. This indicates that the percentage change in quantity supplied is equal to the percentage change in price (PES = 1). Whether the curve slopes steeply or gently, as long as it passes through the origin, it represents unit elasticity. This concept is important for understanding situations where suppliers adjust their quantities in direct proportion to price changes, maintaining a balanced responsiveness.

Why is it important to understand the different elasticities of supply?

Understanding the different elasticities of supply is crucial for analyzing market dynamics and making informed economic decisions. It helps predict how suppliers will respond to price changes, which affects market equilibrium, pricing strategies, and resource allocation. For instance, inelastic supply can lead to significant price increases when demand rises, while elastic supply can stabilize prices. This knowledge is essential for policymakers, businesses, and economists to anticipate market behavior and implement effective strategies.