To say that supply is unitary elastic (or unit elastic) means that the percentage change in the quantity supplied is exactly equal to the percentage change in price. In other words, if the price of a good rises by 10%, the quantity supplied will also increase by 10%. The price elasticity of supply in this case is exactly 1
. Key points:
- The relationship is proportional: any percentage change in price leads to an identical percentage change in the quantity supplied.
- The formula for price elasticity of supply (Es) is:
Es=% change in quantity supplied% change in priceEs=\frac{%\text{ change in quantity supplied}}{%\text{ change in price}}Es=% change in price% change in quantity supplied​
For unitary elastic supply, Es=1Es=1Es=1
- This concept helps analyze how producers respond to price changes and is important for understanding market dynamics
- Graphically, the unitary elastic supply curve passes through the origin and shows that for every percentage increase in price, there is an equal percentage increase in quantity supplied
Example:
If the price of a product increases by 5%, and as a result, the quantity
supplied also increases by 5%, the supply of that product is unitary elastic
