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# AS economics price elasticity of supply

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### AS economics price elasticity of supply

1. 1. AS Economics Price Elasticity of Supply
2. 2. Today’s objectives • Understand price elasticity of supply • Be able to use price elasticity of supply
3. 3. Price elasticity of supply • What do you think it is ? • How do you calculate it? • Write an example (with numbers)
4. 4. Price elasticity of supply • What do entrepreneurs want to do when prices increase? • Why?
5. 5. Price Elasticity of Supply • When price of Muppets characters increases by 20% there is a 10% increase in supply % change in quantity supplied % change in price =0.5 = 10% 20%
6. 6. Price elasticity of supply • The answer shows the extent to which supply is elastic • Answers below 1 are said to be inelastic • Answers above 1 are said to be more price elastic
7. 7. When demand for a good increases, equilibrium price stays the same. What is the elasticity of supply? Sketch this situation in the supply and demand diagram on the left (below) Price Price D1 D2 Quantity Quantity
8. 8. When demand for a good increases, equilibrium price stays the same. What is the elasticity of supply? Sketch this situation in the supply and demand diagram on the left (below) Price Price P1 S1 D1 D2 Quantity Quantity
9. 9. When there is an increase in demand for a product, the rise in equilibrium price is large but the expansion in quantity produced is small. What is the elasticity of supply? Sketch the situation in the supply and demand diagram on the right (below) Price Price P1 S1 D1 D2 Quantity D1 D2 Quantity
10. 10. When there is an increase in demand for a product, the rise in equilibrium price is large but the expansion in quantity produced is small. What is the elasticity of supply? Sketch the situation in the supply and demand diagram on the right (below) Price Price P1 S1 S1 D1 D2 Quantity D1 D2 Quantity
11. 11. When there is an increase in demand for a product, the rise in equilibrium price is large but the expansion in quantity produced is small. What is the elasticity of supply? Sketch the situation in the supply and demand diagram on the right (below) Price Price P1 S1 S1 P1 D1 D2 Quantity D1 Q1 D2 Quantity
12. 12. When there is an increase in demand for a product, the rise in equilibrium price is large but the expansion in quantity produced is small. What is the elasticity of supply? Sketch the situation in the supply and demand diagram on the right (below) Price Price S1 P2 P1 S1 P1 D1 D2 Quantity D1 Q1 D2 Q2 Quantity
13. 13. Price elasticity of supply • Price elasticity of supply is often used to explain why prices rise or fall quite dramatically when there are changes in demand • For example draw a supply curve in July for:
14. 14. Price elasticity of supply • What about for: • If there is no spare stock and all oil wells are producing at full capacity?
15. 15. Price elasticity of supply • On the other hand what about for: • If there is spare stock and factories have spare capacity?
16. 16. What might affect a industry’s price elasticity of supply? Spare capacity Stock levels Supply of raw materials Ease of switching between production of different goods Number of firms in the market Short production times
17. 17. What examples can you think of for perfectly inelastic supply curves? Price Quantity
18. 18. Price elasticity of supply • Price elasticity of supply is often used to explain why prices rise or fall quite dramatically when there are changes in demand • For example draw and explain a supply curve in July for: Now draw a supply curve for next July What is the difference? Why?
19. 19. Price elasticity of supply • Price elasticity of supply is often used to explain why prices rise or fall quite dramatically when there are changes in demand • For example draw a supply curve in for: You have just moved to the desert. Draw a new supply curve for water. What is the difference? Why?
20. 20. Today’s objectives • Understand price elasticity of supply • Be able to use price elasticity of supply