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Lecture 8

The document discusses the concept of price elasticity of supply, which measures how the quantity supplied of a good responds to changes in price. It categorizes supply into unitary elastic, elastic, inelastic, perfectly inelastic, and perfectly elastic, providing examples for each type. Factors that determine the price elasticity of supply include the number of producers, spare capacity, ease of switching production, and the length of the production period.

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SIBGHAT ULLAH MUJADDIDI
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2 views

Lecture 8

The document discusses the concept of price elasticity of supply, which measures how the quantity supplied of a good responds to changes in price. It categorizes supply into unitary elastic, elastic, inelastic, perfectly inelastic, and perfectly elastic, providing examples for each type. Factors that determine the price elasticity of supply include the number of producers, spare capacity, ease of switching production, and the length of the production period.

Uploaded by

SIBGHAT ULLAH MUJADDIDI
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Topic

Elasticity of Supply
Price elasticity of supply
• Price elasticity of supply is a measure of the responsiveness of change
in quantity supplied of a good/service due to a change in price
• Measures that how sensitive the quantity supplied is to a change in
price
• Economists define the price elasticity of supply as the responsiveness
of the quantity supplied of a good to its market price.
• More precisely, the price elasticity of supply is the percentage change
in quantity supplied divided by the percentage change in price.
Unitary elastic supply
• The change in price is relatively the same as the change in quantity supplied.
• The percentage change in price is equal to the percentage change in quantity
• Any change in the price of a good with unit elastic supply results in an equally proportional
change in quantity supplied.

15

10

100 150
Elastic Supply
• A change in price leads to a greater percentage change in quantity supplied.
• Price sensitiveness/Elastic goods are usually viewed as luxury items
• Examples: Construction materials, car, Luxury goods, clothes, Pizza, books, movie tickets

15

10

100 170
Inelastic supply
• A shift in price does not drastically impact consumer demand or the overall supply of the good because
it is not something people are able or willing to go without.
• A change in price leads to a smaller percentage change in Quantity Supplied
• Inelastic goods are often described as necessities
• Examples: petroleum products, food items, housing

15

10

100 125
Perfect Inelastic Supply
• where a change in price has no effect on the quantity supplied.
• Completely insensitive to price/No substitute
• There is no change in quantity supplied when the price changes
• Capacity can not be changed quickly
• Examples include products that have limited quantities, such as land, agriculture production from a specific land
or painting from deceased artists, supply of an electricity.
Perfectly Elastic Supply
• The PES for perfectly elastic supply is infinite, where the quantity supplied is unlimited at a given price, but no
quantity can be supplied at any other price.
• There are virtually no real-life examples of this, where even a small change in price would disallow, product makers
from supplying even a single product.
• A vary slight change in price may make the Q supplied zero or infinite
• Close Examples: Milk, air, water
The price elasticity of supply is
determined by
• Number of producers: ease of entry into the market.
• Spare capacity: it is easy to increase production if there is a shift in demand.
• Ease of switching: if production of goods can be varied, supply is more elastic.
• Ease of storage: when goods can be stored easily, the elastic response
increases demand.
• Length of production period: quick production responds to a price increase
easier.
• Factor availability
• Factor mobility: when moving resources into the industry is easier, the supply
curve in more elastic.
• Reaction of costs: if costs rise slowly it will stimulate an increase in quantity
supplied. If cost rise rapidly the stimulus to production will be choked off
quickly

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