Chapter 18: Elasticity Price elasticity –demand –supply Cross elasticity Income elasticity Price…
PRICE ELASTICITY OF SUPPLY WITH EXAMPLES
15
SHAHI RAZ AKHTAR SHAHI RAZ AKHTAR PRICE ELASTICITY OF SUPPLY BS COMMERCE IST SEMISTER
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Transcript of PRICE ELASTICITY OF SUPPLY WITH EXAMPLES
SHAHI RAZ AKHTARSHAHI RAZ AKHTAR
PRICE ELASTICITY OF SUPPLY
BS COMMERCEIST SEMISTER
MEASURES THE RESPONSIVENESS OF SUPPLY TO A CHANGE IN PRICE.
Price Elasticity of Supply
DEF:- THE RATIO BETWEEN % CHANGE IN QUANTITY SUPPLIED TO THE % CHANGE
IN PRICE.
Price Elasticity of Supply
Percentage Change in Quantity Supplied
Percentage Change in PricePES =
Remember:Es = coefficient of price elasticityQS = Quantity SuppliedP = Price
PES =% ∆QS
% ∆P
•PEs > 1 supply is elastic
•PEs < 1 supply is inelastic
•PEs = 1 Unitary Elastic
•PEs= ∞ Totally Elastic
•PEs= 0 Totally In-Elastic
Figure 1. Elastic Supply Curve
PRICE
P1
P2
0Q1 Q2
S
QUANTITY
Figure 2. Inelastic Supply Curve
PRICE
P1
P2
0Q1 Q2
S
QUANTITY
Figure 3. Unitary Supply Curve
PRICE
P1
P2
0Q1 Q2
S
QUANTITY
Figure 4. Perfectly Elastic Supply Curve
PRICE
P1
0
S
QUANTITY
Figure 5. Perfectly Inelastic Supply Curve
PRICE
P1
P2
0
S
QUANTITY
1- TIME 2- PRODUCTION CAPACITY 3- PRODUCER OR CHIEF 4- STORED PRODUCTS
FACTORS That affect PRICE ELASTICITY OF
SUPPLY
Problem #1
An individual used to raise 10 bags which sell on the market at a minimum of $8 each. For some reasons, the market price per bag reached $10. He decided to raise 20. Let us find out how elastic or responsive the production was to price.
Given variables?
Qs1 = 10P1 = $8 eachQs2 = 20 P2 = $10∆Qs = ? ; ∆P = ?PES = ?
Q2-Q1 20-10 10∆QS = = = = 1 Q1 10 10
P2-P1 10-8 2∆P = = = = 0.25 P1 8 8
∆Qs 1PES = = = 4 ∆ P 0.25
We conclude that the PEOS is 4 . So PEOS is used to see how responsive or
sensitive is supply of a good to change in price.
