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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 demanded to also increase, all other things being equal.
Price Elasticity of Supply
Measures the supplier’s response to change in price.
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
RANGES OF ELASTICITY: Supply
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.
Figure 1. Elastic Supply Curve
PRICE
P1
P2
0Q1 Q2
S
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.
Figure 2. Inelastic Supply Curve
PRICE
P1
P2
0Q1 Q2
S
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.
Figure 3. Unitary Supply Curve
PRICE
P1
P2
0Q1 Q2
S
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
Figure 4. Perfectly Elastic Supply Curve
PRICE
P1
0
S
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.
Figure 5. Perfectly Inelastic Supply Curve
PRICE
P1
P2
0
S
QUANTITY
Problem #1
An individual used to raise 10 hogs which sell on the market at a minimum of P4,000 each. For some reasons, the market price per hog reached P5,000. He decided to raise 20. Let us find out how elastic or responsive the production was to price.
Given variables?
Qs1 = 10P1 = P4,000 eachQs2 = 20 P2 = P5,000∆Qs = ? ; ∆P = ?%∆Qs = ? ;Q = ?
Es = 3 - ELASTIC
It means that for every percentage change in price, percentage change in supplied will be 3%.
