Price Elasticity of Supply

Definition:
Price elasticity of supply measures the responsiveness of quantity supplied to a change in price of a commodity. It indicates the percentage change in quantity supplied for a given percentage change in price.

Formula:
The formula to calculate the price elasticity of supply is:
Price Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)

Supply Curve:
A straight line supply curve passing through the origin forms an angle of 75 degrees. This implies that the supply curve has a constant slope or elasticity throughout its entire length.

Interpretation:
The angle of 75 degrees indicates the slope of the supply curve. The steeper the slope, the less elastic the supply is, and the flatter the slope, the more elastic the supply is.

Price Elasticity of Supply Calculation:
To calculate the price elasticity of supply for this commodity, we need to determine the percentage change in quantity supplied and the percentage change in price.

Example:
Let's assume the quantity supplied initially is 100 units at a price of $10. If the price increases to $12, the new quantity supplied is 120 units.

Percentage change in quantity supplied = ((New Quantity Supplied - Initial Quantity Supplied) / Initial Quantity Supplied) * 100
= ((120 - 100) / 100) * 100
= 20%

Percentage change in price = ((New Price - Initial Price) / Initial Price) * 100
= (($12 - $10) / $10) * 100
= 20%

Calculating Price Elasticity of Supply:
Price Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)
= 20% / 20%
= 1

Interpretation:
The price elasticity of supply for this commodity is 1. This indicates that the supply is unit elastic, meaning that the percentage change in quantity supplied is equal to the percentage change in price. In other words, a 1% increase in price will result in a 1% increase in quantity supplied.

Conclusion:
The price elasticity of supply for a commodity with a straight line supply curve passing through the origin and forming an angle of 75 degrees is 1, indicating unit elasticity.