Question

Explain how the elasticity of supply is related to the change in quantity supplied while a cross price elasticity of supply is related to a change in supply.

Answer 1

The elasticity of supply simply indicates the change in quantity supplied of a commodity due to changes in the price of that commodity. The elasticity of supply of a commodity also called the own-price elasticity. For a single commodity, the elasticity of supply measured using the following method. If the commodity is 'X' ,quantity supplied is indicated as Q_x And the price of that commodity is 'P_x', then the elasticity of supply will be

It means E_s = Proportionate change in Quantity supplied of X / Proportionate change in the price of X

Or

  

While the cross elasticity of Supply indicates the change quantity supplied of a commodity due to the change in the price of another commodity. For example, if there are two commodities X and Y then cross elasticity indicates the proportionate change in quantity supplied of X due to proportionate change in the price of Y. Thus, cross-price elasticity of supply can be symbolized as

y

or

Thus, from the above discussion, it is clear that both the elasticity indicates the change in the quantity supply of a commodity. But, the difference is that the price elasticity of supply indicates the change in quantity supplied due to the change in its own price and cross-price elasticity of supply indicates the change in quantity supplied due to the change in the price of other related goods (it may be complementary or substitute goods).