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INCOME ELASTICITY OF DEMAND: The relative response of a change in demand to a relative change in income. More specifically the income elasticity of demand can be defined as the percentage change in demand due to a percentage change in buyers' income. The income elasticity of demand quantitatively identifies the theoretical relationship between income and demand.

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ELASTICITY AND SUPPLY INTERCEPT:

The intersection of a straight-line supply curve with vertical price axis and/or horizontal quantity axis reveals the relative price elasticity of supply. Intersection with the horizontal quantity axis means inelastic and intersection with the vertical price axis means elastic. Intersection with the origin means unit elastic supply.
The positioning of a supply curve relative to the price and quantity axes indicates the price elasticity of supply. Unlike demand, a straight-line supply curve does not contain all five elasticity alternatives. However, the elastic or inelastic nature of a supply curve is revealed by the intersection with the vertical price axis and/or horizontal quantity axis.

Five Elasticity Alternatives

Five Supply Curves



The elasticity of a supply curve depends on whether the supply curve intersects the price axis, the quantity axis, or the origin. The exhibit to the right can be used to illustrate the five elasticity alternatives.
  • Perfectly Elastic: First up is perfectly elastic supply, which means an infinitesimally small change in price results in an infinitely large change in quantity supplied. The coefficient of elasticity for this alternative is E = ∞. A click of the [Perfectly E] button reveals a perfectly elastic supply curve, which is horizontal and intersects the vertical price axis.

  • Relatively Elastic: Next up is relatively elastic supply, which means a relatively small change in price results in a relatively large change in quantity supplied. The coefficient of elasticity for this alternative is in the range of 1 < E < ∞. A click of the [Relatively E] button reveals a relatively elastic supply curve, which is flat but not horizontal and intersects the price axis.

  • Unit Elastic: Third on the list is unit elastic supply, which means that any change in price is matched by an equal relative change in quantity. The coefficient of elasticity for this alternative is in the range of E = 1. A click of the [Unit Elastic] button reveals a unit elastic supply curve, which is a straight line extending from the origin.

  • Relatively Inelastic: Next is relatively inelastic supply, which means a relatively large change in price is needed to induce a relatively small change in quantity supplied. The coefficient of elasticity for this alternative is in the range of 0 < E < 1. A click of the [Relatively In] button reveals a relatively inelastic supply curve, which is steep but not vertical and intersects the quantity axis.

  • Perfectly Inelastic: Lastly is perfectly inelastic supply, means that quantity supplied is unaffected by any change in price. The coefficient of elasticity for this alternative is E = 0. A click of the [Perfectly In] button reveals a perfectly inelastic supply curve, which is vertical and intersects the horizontal quantity axis.

An Explanation, Please

An explanation of this connection between elasticity and intercept can be had with a closer look at the elasticity concept. Elasticity is comparison between the percentage changes in price and quantity. A percentage change depends on both amount of the change, or the unit change, and the starting point, or base value, of the change. Because slope is constant for a straight-line supply curve, unit changes are always proportional for any of the supply curves displayed here.

The difference in elasticity rests with the base values. For a supply curve that intersects the vertical price axis, price starts with a larger base value than quantity. As such, any subsequent price change is relatively smaller, compared to this larger base, than the quantity change. This results in a relatively elastic supply.

For a supply curve that intersects the horizontal quantity axis, quantity starts with a larger base value than the price. As such, any subsequent quantity change is relatively smaller, compared to this larger base, than the price change. This results in a relatively inelastic supply.

For a supply curve that goes through the origin, price and quantity start with equal zero values, and equal bases. As such, all subsequent price and quantity changes are proportional. This results in a unit elastic supply.

<= ELASTICITY AND DEMAND SLOPEELASTICITY DETERMINANTS =>


Recommended Citation:

ELASTICITY AND SUPPLY INTERCEPT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: April 24, 2018].


Check Out These Related Terms...

     | elasticity and demand slope | demand elasticity and total expenditure |


Or For A Little Background...

     | elasticity | coefficient of elasticity | midpoint elasticity formula | elasticity alternatives | elasticity alternatives, supply | price elasticity of supply | elastic | inelastic |


And For Further Study...

     | elasticity determinants | price elasticity of supply | income elasticity of demand | cross elasticity of demand | elasticity alternatives, demand | arc elasticity |


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