MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to...

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MR. REY BELEN PRICE ELASTICITY OF SUPPLY

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Page 1: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

MR. REY BELEN

PRICE ELASTICITY OF SUPPLY

Page 2: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Supply

Price and Quantity Demanded are directly related to each other.

An increase in price causes the quantity demanded to also increase, all other things being equal.

Page 3: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Price Elasticity of Supply

Measures the supplier’s response to change in price.

Page 4: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

The coefficient of price elasticity of supply is defined as:

Remember:Es = coefficient of price elasticityQD = Quantity SuppliedP = Price

The coefficient of price elasticity of supply is equal to the percentage change in quantity supplied divided by the percentage change in price.

WHERE:∆Qs = QS2 – QS1 ∆P = P2 – P1

%∆Qs = Qs2 – Qs1 Qs

Qs = Qs2 + Qs1 2

𝐸𝑆 =𝑄𝑆2 − 𝑄𝑆1𝑄𝑆1+ 𝑄𝑆1 2𝑃2 − 𝑃1𝑃2 − 𝑃12

𝐸𝑆 = %∆𝑆%∆𝑃

Page 5: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

RANGES OF ELASTICITY: Supply

Page 6: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Elastic Supply

A given percentage change in price results in a larger percentage change in quantity supplied.

An increase in price from P1 to P2 causes a more than proportionate increase in quantity supplied from Q1 to Q2.

Page 7: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Figure 1. Elastic Supply Curve

PRICE

P1

P2

0Q1 Q2

S

QUANTITY

Page 8: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Inelastic Supply

A given percentage change in price results in a smaller percentage change in quantity supplied.

An increase in price from P1 to P2 causes a less than proportionate increase in quantity supplied from Q1 to Q2.

Page 9: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Figure 2. Inelastic Supply Curve

PRICE

P1

P2

0Q1 Q2

S

QUANTITY

Page 10: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Unitary Supply

A given percentage change in price results in an equal percentage change in quantity supplied.

An increase in price from P1 to P2 causes a proportionate increase in quantity supplied from Q1 to Q2.

Page 11: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Figure 3. Unitary Supply Curve

PRICE

P1

P2

0Q1 Q2

S

QUANTITY

Page 12: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Perfectly Elastic Demand

Even without a change in price, there is an infinitely large percentage change in quantity supplied.

Producers will be willing to supply any quantity at a given price

Page 13: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Figure 4. Perfectly Elastic Supply Curve

PRICE

P1

0

S

QUANTITY

Page 14: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Perfectly Inelastic Demand

A given percentage change in price results in no change in quantity supplied.

A change in price from P1 to P2 causes no change in quantity supplied.

Page 15: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Figure 5. Perfectly Inelastic Supply Curve

PRICE

P1

P2

0

S

QUANTITY

Page 16: MR. REY BELEN PRICE ELASTICITY OF SUPPLY. Supply Price and Quantity Demanded are directly related to each other. An increase in price causes the quantity.

Es = 3 - ELASTIC

It means that for every percentage change in price, percentage change in supplied will be 3%.


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