Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.
-
Upload
nasir-garwood -
Category
Documents
-
view
237 -
download
10
Transcript of Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.
![Page 1: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/1.jpg)
Price Elasticity of SupplyAS economics revision presentation on price elasticity of supply
![Page 2: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/2.jpg)
Price Elasticity of Supply
• Price elasticity of supply (Pes) measures the relationship between change in quantity supplied and a change in price.
– When supply is elastic, producers can increase production without a rise in cost or a time delay
– When supply is inelastic, firms find it hard to change their production levels in a given time period.
• The formula for price elasticity of supply is:
– Percentage change in quantity supplied divided by the Percentage change in price
• The co-efficient of elasticity of supply is positive, because an increase in price is likely to increase the quantity supplied to the market
![Page 3: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/3.jpg)
Price Elasticity of Supply - Measurement
ES = % change in quantity supplied% change in price
ES > 1 price-elastic supply
ES = 1 unit-elastic supply
ES < 1 price-inelastic supply
Es = 0 perfectly inelastic supply
Es = infinity perfectly elastic supply
![Page 4: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/4.jpg)
What Determines Supply Elasticity?
• Factor substitution possibilities
– Can labour/capital be switched easily when there is a change in demand
• When factor substitution is possible, supply will tend to be elastic
• When factors are highly specialized, substitution may be harder
• Spare production capacity available
– When there is spare capacity, businesses can expand output easily without upward pressure on costs
![Page 5: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/5.jpg)
What Determines Supply Elasticity (2)
• Stocks (inventories) available to meet demand
– A low level of stocks makes supply inelastic in the short term
– When stocks can be released onto the market, supply is elastic
• The time frame allowed
– Momentary period (fixed supply)
– Short run (inelastic supply)
– Long run (elastic supply)
• Artificial limits on supply
– E.g. the impact of patents that limit which firms can supply a product
![Page 6: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/6.jpg)
Applying the Concept of Price Elasticity of Supply
![Page 7: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/7.jpg)
Applying The Concept of Elasticity of Supply (1)
• Seats in a football stadium / theatre / cinema
– Short run capacity of any stadium is more or less fixed
– Long run – expansion of stadium capacity / development of a new ground
• An increase in demand for fresh salmon
– Time lags in the production process – fixed supply available to the market in momentary period (i.e. the daily catch)
– Longer term; change in the number of vessels, length of time at sea
• World supply of oil following a large rise in world demand
– Variable amount of spare capacity among the major oil producers
– Can oil stocks be put onto the market to meet the rise in demand?
– Oil supply might be inelastic if current output is close to capacity
![Page 8: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/8.jpg)
Applying The Concept of Elasticity of Supply (1)
• The supply of drugs required to treat Anthrax
– Short term supply is dependent on stocks of product available
– If stocks are low, supply cannot increase in the short term to meet demand
– Debate over the use of patents and how this limits production in the long run
• The supply of new housing
– Planning permission + availability of land to develop + shortages of skilled labour
– Time lags in the production process – new housing developments take months to complete
![Page 9: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/9.jpg)
Momentary Supply – Price Elasticity = Zero
Quantity Supplied (Qs)
Price (P)
![Page 10: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/10.jpg)
Momentary Supply – Price Elasticity = Zero
Quantity Supplied (Qs)
Price (P)
Momentary Supply
Q1
![Page 11: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/11.jpg)
Momentary Supply – Price Elasticity = Zero
Quantity Supplied (Qs)
Price (P)
Momentary Supply
P1
Q1
D1
![Page 12: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/12.jpg)
Momentary Supply – Price Elasticity = Zero
Quantity Supplied (Qs)
Price (P)
Momentary Supply
P1
Q1
D1
D2
P1
![Page 13: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/13.jpg)
Momentary Supply – Price Elasticity = Zero
Quantity Supplied (Qs)
Price (P)
Momentary Supply
P1
Q1
D1
D2
P1
Increase in price from P1 to P2 does not lead to a change in supply
![Page 14: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/14.jpg)
Short Run Supply
Quantity Supplied (Qs)
Price (P)
Momentary Supply
P1
Q1
D1
D2
P2
Short Run Supply
![Page 15: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/15.jpg)
Short Run Supply
Quantity Supplied (Qs)
Price (P)
Momentary Supply
P1
Q1
D1
D2
P2
Short Run Supply
Q2
P3
![Page 16: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/16.jpg)
Short Run Supply
Quantity Supplied (Qs)
Price (P)
Momentary Supply
P1
Q1
D1
D2
P2
Short Run Supply
Q2
Increase in price from P1 to P2 does lead to a short term expansion in supply
P3
![Page 17: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/17.jpg)
Long Run Supply Response
Quantity Supplied (Qs)
Price (P)
Momentary Supply
P1
Q1
D1
D2
P2
Short Run Supply
Q2
Long Run SupplyP3
![Page 18: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/18.jpg)
Long Run Supply Response
Quantity Supplied (Qs)
Price (P)
Momentary Supply
P1
Q1
D1
D2
P1
Short Run Supply
Q2
Long Run Supply
Q3
P3
![Page 19: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/19.jpg)
Long Term Response to an Increase in Demand
Quantity Supplied (Qs)
Price (P)
Demand
Short Run Supply
P2
P1
Q1 Q2
Long Run Supply
D2
P3
Q3
Longer time frame – supply is more elastic – larger rise in output if price P2 is sustained
![Page 20: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/20.jpg)
Long Term Response to an Increase in Demand
Quantity Supplied (Qs)
Price (P)
Demand
Short Run Supply
P2
P1
Q1 Q2
Long Run Supply
D2
P3
Q3
Longer time frame – supply is more elastic – larger rise in output if price P2 is sustained
![Page 21: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/21.jpg)
Long Term Response to an Increase in Demand
Quantity Supplied (Qs)
Price (P)
Demand
Short Run Supply
P2
P1
Q1 Q2
Long Run Supply
D2
P3
Q3
Longer time frame – supply is more elastic – larger rise in output if price P2 is sustained
![Page 22: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/22.jpg)
Values for price elasticity of supply
• When supply is perfectly inelastic a change in price has no effect on the quantity supplied onto the market
• When supply is perfectly elastic a firm can supply any quantity at the same market price. This occurs when the firm can produce output at a constant cost per unit and it has no capacity limits to its production
• When supply is relatively inelastic a change in demand affects price more than quantity supplied
• When supply is relatively elastic. A change in demand can be met without a change in market price
![Page 23: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/23.jpg)
Differences in Price Elasticity of Supply
Price
Quantity
Price
Quantity
Price
Quantity
Price
Quantity
Inelastic Supply Curve
Perfectly elastic supply An elastic supply curve
Perfectly inelastic supply
![Page 24: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/24.jpg)
Elasticity of supply and changes in market demand
Price
Relatively Elastic SupplySupply responds quickly to a
change in demand
Relatively Inelastic SupplySupply responds less than
proportionately to a change in price
Supply
Supply
Quantity Quantity Q1Q2 Q3
P1
P1
P2
P3
Q1
D3D2D1
P2P3
D3D2
D1
![Page 25: Price Elasticity of Supply AS economics revision presentation on price elasticity of supply.](https://reader031.fdocuments.net/reader031/viewer/2022013118/56649c775503460f9492c41b/html5/thumbnails/25.jpg)
The non-linear supply curve
Price
Quantity
P2
P3
P1
Q2Q1 Q3
P4
P5
Supply
Q4 Q5