Applied Economics

Governor Pack Road, Baguio City, Philippines 2600

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 5 – Applied Economics Subject Teacher:

Learning Objectives:
At the end of the module, the students must be able to:
a. explain the concept of supply elasticity.
b. explain various factors that affect elasticity.
c. solve supply price elasticity.

I. THE PRICE ELASTICITY OF SUPPLY

The Price Elasticity of Supply is the measure of the responsiveness of the quantity supplied for every
change in the level of price of a particular good. Price Elasticity of Supply may be depicted as:

a. Elastic
b. Inelastic
c. Perfectly Elastic
d. Perfectly Inelastic; and
e. Unitary Elastic

The Price Elasticity of Supply will be computed using the formula:

%∆𝐐𝐬
Pe =
%∆𝐏

(𝑸𝒔𝟐−𝑸𝒔𝟏)

Pe = 𝑸𝒔𝟏
(𝑷𝟐−𝑷𝟏)
𝑷𝟏

A. Elastic Price Elasticity

The price elasticity of supply is elastic if Pe > 1. If price elasticity is one which is elastic, then
quantity supplied significantly reacts to the change in price. In this type of price elasticity, goods
are often described as luxurious items such as jewelries. To illustrate, consider the supply
schedule:

SUPPLY SCHEDULE
Price per Unit (P) Quantity Supplied (QS)
2 30
4 90

(𝑸𝒔𝟐−𝑸𝒔𝟏)

Using the formula Pe = 𝑸𝒔𝟏

(𝑷𝟐−𝑷𝟏) , the price elasticity of supply is computed as follows:
𝑷𝟏

(90−30)

Pe = 30
(4−2)
2

60
Pe = 30
2
2

2
Pe =1
Pe =𝟐 > 1

B. Inelastic Price Elasticity

The price elasticity of supply is inelastic if Pe < 1. If price elasticity is one which is elastic, no drastic
change in quantity supplied occur upon any change in price. In this type of price elasticity,
goods are often described as necessities such as food supplies. To illustrate, consider the supply
schedule:

SUPPLY SCHEDULE
Page 1 of 5
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 5 – Applied Economics Subject Teacher:

Price per Unit (P) Quantity Supplied (QS)

5 200
15 300

(𝑸𝒔𝟐−𝑸𝒔𝟏)

Using the formula Pe = 𝑸𝒔𝟏

(𝑷𝟐−𝑷𝟏) , the price elasticity of supply is computed as follows:
𝑷𝟏

(300−200)

Pe = 200
(15−5)
5

100
Pe = 200
10
5

0.5
Pe = 2
Pe = 𝟎. 𝟐𝟓 < 1

C. Perfectly Elastic Price Elasticity

The price elasticity of supply is perfectly elastic if Pe = ∞. If price elasticity is one which is elastic,
then any change in price would lead supply to 0. Goods under this type of price elasticity is
almost impossible to be found because. To illustrate, consider the supply schedule:

SUPPLY SCHEDULE
Price per Unit (P) Quantity Supplied (QS)
20 200
20 250

(𝑸𝒔𝟐−𝑸𝒔𝟏)

Using the formula Pe = 𝑸𝒔𝟏

(𝑷𝟐−𝑷𝟏) , the price elasticity of supply is computed as follows:
𝑷𝟏

(250−200)

Pe = 200
(20−20)
20

50

Pe = 200
0
20

0.25
Pe = 0
Pe = ∞ = infinity

D. Perfectly Inelastic Price Elasticity

The price elasticity of supply is perfectly inelastic if Pe = 0. If price elasticity is one which is perfectly
inelastic, then any change in price would not affect the supply. The real estate industry belongs
to this type of elasticity. Land, for example does not increase its area despite the appreciation
of its price. To illustrate, consider the supply schedule:

SUPPLY SCHEDULE
Price per Unit (P) Quantity Supplied (QS)
20 100
40 100

(𝑸𝒔𝟐−𝑸𝒔𝟏)

Using the formula Pe = 𝑸𝒔𝟏

(𝑷𝟐−𝑷𝟏) , the price elasticity of supply is computed as follows:
𝑷𝟏

Page 2 of 5
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 5 – Applied Economics Subject Teacher:

(100−100)

Pe = 100
(40−20)
20

Pe = 100
20
20

0
Pe =1
Pe =0

E. Unitary Elasticity
The price elasticity of supply is unitary if Pe = 1. If price elasticity is one which is perfectly inelastic,
then any change in price would supply at the same rate. To illustrate, consider the supply
schedule:

SUPPLY SCHEDULE
Price per Unit (P) Quantity Supplied (QS)
5 200
10 400

(𝑸𝒔𝟐−𝑸𝒔𝟏)

Using the formula Pe = 𝑸𝒔𝟏

(𝑷𝟐−𝑷𝟏) , the price elasticity of supply is computed as follows:
𝑷𝟏

(400−200)
Pe = 200
(10−5)
5

200

Pe = 200
5
5

1
Pe =1
Pe =1

HOW WILL A SUPPLY CURVE LOOK LIKE UNDER DIFFERENT PRICE ELASTICITIES?

1. Elastic 2. Inelastic

P P
S

QS QS

3. Perfectly Elastic 4. Perfectly Inelastic

P P
S

S
Page 3 of 5
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 5 – Applied Economics Subject Teacher:

QS QS

5. Unitary Elastic

P
S

QS

II. NON-PRICE DETERMINANTS OF SUPPLY

The change in the supply may be a shift of a point within the original supply curve:

SUPPLY FOR COTTON

8
or
PRICE (₱)

6
4 QS= 2.5 P
2
0
10 15 20 25
QUANTITY SUPPLIED (QS)

And a shift of the entire supply curve:

SUPPLY FOR COTTON S1

S3
8
6 S2
PRICE (₱)

4
2
0
10 15 20 25
QUANTITY SUPPLIED (QS)

The shift of the entire supply curve, as shown in the second illustration is brought about by a
factor, other than price- this is called non-price determinant. If the Supply curve shifts to the right,
supply increases. On the other hand, if the supply curve shifts to the left, the supply decreases.
Price, does not determine change in the supply, but the following:

1. Number of sellers in the market;

2. Technological Advancements;
3. Cost of Production;
4. Governmental Rules and Regulations;
5. Law;
6. Season; and
7. Weather.

Example: With the use of advance technology such as modern machineries and equipment,
the production would become more efficient and businesses will produce more goods as
compared to those who still apply labor-intensive production. Thus, the increase in production
means increase in supply, and a shift of the original supply curve to the right.

Page 4 of 5
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 5 – Applied Economics Subject Teacher:

ACTIVITY 5:
INSTRUCTION : Explain why the following non-price determinants affect the change in the supply. Limit
your answers in not more than 4 sentences. Write answers on a long bond paper (hand-written) and
submit the same to your subject teacher.

a. Number of sellers in the market;

______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________

b. Technological Advancements;
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________

c. Cost of Production;
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________

d. Governmental Rules and Regulations;

______________________________________________________________________________________________
______________________________________________________________________________________________
____________________________________________________________________________
e. Law;
______________________________________________________________________________________________
______________________________________________________________________________________________
____________________________________________________________________________

f. Season;
______________________________________________________________________________________________
______________________________________________________________________________________________
____________________________________________________________________________

g. Weather.
______________________________________________________________________________________________
______________________________________________________________________________________________
____________________________________________________________________________

References:
1. Azarcon, et al. (2008). Principles of Economics. Baguio City: Valencia Book team.
2. Caoile, P. V. (2017). Applied Economics. Quezon City: Phoenix Publishing House, Inc.

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