Question

Answer the following question.
Explain the geometric method of calculating the elasticity of supply.

Answer 1

According to the geometric method, elasticity is measured at a given point on the supply curve.
This method is also known as the ‘Arc Method’ or ‘Point Method’.

(i) Highly Elastic Supply (E_s > 1): A supply curve, which passes through the Y-axis and meets the extended X-axis at some point. For example in fig. the supply is highly elastic.
Since LQ is greater than OQ, the elasticity of supply at point A will be greater than one (highly elastic).
In general, we can say that a straight line supply curve passing through the Y-axis or having a negative intercept on X-axis is highly elastic (E_s > 1).

(ii) Unitary Elastic Supply (E_s = 1): If the straight-line supply curve passes through the origin (supply curve SS in fig.), then elasticity of supply will be equal to one. In the diagram, Elasticity of Supply (E_s) = `"OQ"/"OQ"` = 1. Hence, the supply is unitary elastic.

(iii) Less Elastic Supply (E_s < 1): If a supply curve meets the X-axis at some point, say, L in Fig., then supply is inelastic. As seen in the fig., E_s = `"LQ"/"OQ"` and LQ < OQ. So, E_s < 1, i.e. supply is less elastic.

(iv) Perfectly Elastic Supply: When there is an infinite supply at a particular price and the supply becomes zero with a slight fall in price, then the supply of such a commodity is said to be perfectly elastic. In such a case E_s = Y and the supply curve is a horizontal straight line parallel to the X-axis, as shown in fig.

(v) Perfectly Inelastic Supply: When the supply does not change with change in price, then supply for such a commodity is said to be perfectly inelastic. In such a case, E_s = 0 and the supply curve (SS) is a vertical straight line parallel to the Y-axis as shown in fig.