Unit Elastic Supply

Definition

Unit elastic supply refers to a situation where the price elasticity of supply is equal to 1. This means that a 1% change in the price of a good will result in a 1% change in the quantity supplied, keeping all other factors constant. The unit elastic supply curve is a straight line passing through the origin, indicating a proportional relationship between price and quantity supplied.

5 Must Know Facts For Your Next Test

1. Unit elastic supply indicates that the percentage change in quantity supplied is equal to the percentage change in price.
2. The unit elastic supply curve is a straight line passing through the origin, with a slope of 1.
3. Unit elastic supply is a special case of price elasticity of supply, where the value is exactly 1.
4. Unit elastic supply means that producers are equally responsive to changes in price, neither highly sensitive nor completely unresponsive.
5. The concept of unit elastic supply is important in understanding the impact of price changes on the quantity supplied and the resulting revenue for producers.

Review Questions

• Explain how the concept of unit elastic supply relates to the price elasticity of supply.
  • Unit elastic supply is a specific case of price elasticity of supply, where the value is exactly 1. This means that a 1% change in price will result in a 1% change in the quantity supplied, keeping all other factors constant. The unit elastic supply curve is a straight line passing through the origin, indicating a proportional relationship between price and quantity supplied. This concept is important in understanding how producers respond to changes in price and the resulting impact on revenue.
• Describe the characteristics of a unit elastic supply curve and how it differs from other types of supply curves.
  • The unit elastic supply curve is a straight line passing through the origin, with a slope of 1. This means that the percentage change in quantity supplied is equal to the percentage change in price. In contrast, a perfectly elastic supply curve is horizontal, indicating that suppliers are willing to supply any quantity at the given market price. A perfectly inelastic supply curve, on the other hand, is vertical, meaning that the quantity supplied does not respond to changes in price. The unit elastic supply curve represents a middle ground, where producers are equally responsive to changes in price, neither highly sensitive nor completely unresponsive.
• Analyze the implications of unit elastic supply for producers and the overall market equilibrium.
  • When supply is unit elastic, a change in price will result in a proportional change in the quantity supplied. This means that producers' revenue will remain constant, as the increase in price will be offset by the decrease in quantity sold, or vice versa. In terms of market equilibrium, a change in demand will lead to a change in both price and quantity, but the total revenue for producers will remain the same. This is in contrast to the case of perfectly elastic or perfectly inelastic supply, where changes in demand would have different implications for producers' revenue and the overall market equilibrium.

Related terms

Price Elasticity of Supply:

Price elasticity of supply measures the responsiveness of quantity supplied to changes in price. It is calculated as the percent change in quantity supplied divided by the percent change in price.

Perfectly Elastic Supply: Perfectly elastic supply refers to a situation where the price elasticity of supply is infinite, meaning that suppliers are willing to supply any quantity at the given market price.

Perfectly Inelastic Supply: Perfectly inelastic supply refers to a situation where the price elasticity of supply is zero, meaning that the quantity supplied does not respond to changes in price.