Inelastic Supply:

The supply of a commodity is said to be inelastic when the price elasticity of supply coefficient is less tahn one (1). In this case a change in price causes a comparatively smaller change in quantity demanded or the percentage change in price is greater that the percentage change in quantity sypplied.

Example

The price of a good fell from ¢150,000 to ¢140,000 and quantity supplied responded by falling from 80 to 75 units. Calculate price elasticity of supply and interpret your results.

Solution

ΔP = ¢140,000 - ¢150,000 = ¢10,000

ΔQs = 75 - 80 = -5

PED = (ΔQs / ΔP) x (P/Qs)= (-5/-10,000) x (150,000/80) = 0.9

Since PES of 0.9 is less thatn 1, supply of the product is inelastic.