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Price Elasticity Of Supply

by Rey Belen, Teacher at Rotaract Club of Manila Metro / Hands On Manila on Sep 21, 2010

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Price Elasticity Of SupplyPresentation Transcript

• 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 elasticity Q D = Quantity Supplied P = 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
• 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 P 1 to P 2 causes a more than proportionate increase in quantity supplied from Q 1 to Q 2 .
• Figure 1. Elastic Supply Curve PRICE P1 P2 0 Q1 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 P 1 to P 2 causes a less than proportionate increase in quantity supplied from Q 1 to Q 2 .
• Figure 2. Inelastic Supply Curve PRICE P1 P2 0 Q1 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 P 1 to P 2 causes a proportionate increase in quantity supplied from Q 1 to Q 2 .
• Figure 3. Unitary Supply Curve PRICE P1 P2 0 Q1 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 P 1 to P 2 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 = 10
• P1 = P4,000 each
• Qs2 = 20
• P2 = P5,000
• ∆ Qs = ? ; ∆P = ?
• %∆Qs = ? ;
• Q = ?
• E s = 3 - ELASTIC
• It means that for every percentage change in price, percentage change in supplied will be 3%.