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PRICE ELASTICITY OF SUPPLY WITH EXAMPLES

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• We use percentages so it doesn’t matter which unit of measure we are using. The concept of price elasticity also applies to supply. The elasticity formula is the same as that for demand, but we must substitute the word “supplied” for the word “demanded” everywhere in the formula. Just like with price elasticity of demand, we will compute the price elasticity of supply using the midpoint formula.
• PRICE ELASTICITY OF SUPPLY WITH EXAMPLES

1. 1. SHAHI RAZ AKHTAR PRICE ELASTICITY OF SUPPLY BS COMMERCE IST SEMISTER
2. 2. <ul><li>MEASURES THE RESPONSIVENESS OF SUPPLY TO A CHANGE IN PRICE. </li></ul>Price Elasticity of Supply DEF:- THE RATIO BETWEEN % CHANGE IN QUANTITY SUPPLIED TO THE % CHANGE IN PRICE.
3. 3. Price Elasticity of Supply Remember: Es = coefficient of price elasticity QS = Quantity Supplied P = Price PES = % ∆Q S % ∆P Percentage Change in Quantity Supplied Percentage Change in Price PE S =
4. 4. <ul><li>PE s > 1 supply is elastic </li></ul><ul><li>PE s < 1 supply is inelastic </li></ul><ul><li>PEs = 1 Unitary Elastic </li></ul><ul><li>PEs= ∞ Totally Elastic </li></ul><ul><li>PEs= 0 Totally In-Elastic </li></ul>
5. 5. Figure 1. Elastic Supply Curve PRICE P1 P2 0 Q1 Q2 S QUANTITY
6. 6. Figure 2. Inelastic Supply Curve PRICE P1 P2 0 Q1 Q2 S QUANTITY
7. 7. Figure 3. Unitary Supply Curve PRICE P1 P2 0 Q1 Q2 S QUANTITY
8. 8. Figure 4. Perfectly Elastic Supply Curve PRICE P1 0 S QUANTITY
9. 9. Figure 5. Perfectly Inelastic Supply Curve PRICE P1 P2 0 S QUANTITY
10. 10. <ul><li>1- TIME </li></ul><ul><li>2- PRODUCTION CAPACITY </li></ul><ul><li>3- PRODUCER OR CHIEF </li></ul><ul><li>4- STORED PRODUCTS </li></ul>FACTORS That affect PRICE ELASTICITY OF SUPPLY
11. 11. Problem #1 <ul><li>An individual used to raise 10 bags which sell on the market at a minimum of \$8 each. For some reasons, the market price per bag reached \$10. He decided to raise 20. Let us find out how elastic or responsive the production was to price. </li></ul>
12. 12. Given variables? <ul><li>Qs1 = 10 </li></ul><ul><li>P1 = \$8 each </li></ul><ul><li>Qs2 = 20 </li></ul><ul><li>P2 = \$10 </li></ul><ul><li>∆ Qs = ? ; ∆P = ? </li></ul><ul><li>PES = ? </li></ul>
13. 13. Q2-Q1 20-10 10 ∆ QS = = = = 1 Q1 10 10 P2-P1 10-8 2 ∆ P = = = = 0.25 P1 8 8
14. 14. ∆ Qs 1 PES = = = 4 ∆ P 0.25 <ul><li>We conclude that the PEOS is 4 . </li></ul><ul><li>So PEOS is used to see how responsive or sensitive is supply of a good to change in price. </li></ul>
15. 15. [email_address] PATHANKING 12 @YAHOO.COM THE END