The point elasticity of supply can be illustrated by the following formula / equations
E = { (ΔQS/ΔP) X (P/QS)
Axe elasticity of supply is explained as elasticity between two points of a supply curve in given period of time.
Arc elasticity of supply is calculated using the following formula.
{ (ΔQS/ΔP) X (P1+ P2 /QS1 +QS2) }
In addition to the above situations there is perfect inelastic supply and perfect
elastic supply also.
If the supply curve is parallel to the vertical axis or the price axis price elasticity of supply is perfectly inelastic, the coefficient of elasticity of supply is zero(0).
If the supply curve is parallel to the horizontal axis or quantity axis , then the price elasticity is perfectly elastic or infinity.
Quantity supply is changed variously to a change in price because of different factors are effective.
When implementing economic policies supply elasticity is very important.
Change in price to a change in the nature of a good is decided according to supply
elasticity.
Supply elasticity affects to divide tax incidence between consumer and producer when implementing taxes.
If price elasticity of supply is more elastic more benefits of a subsidy are enjoyed by the consumer
When supply of factors get perfectly elastic the total factor earnings will consist of transfer earnings.
When supply of factors get perfectly inelastic the total factor earnings will consist of economic rent.
When supply of factors get unitary elastic the total factor earnings will consist of both transfer earnings and economic rent equally.
Transfer earning and economic rent can be shown by the digams below.