Price Elasticity of Supply

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Price elasticity of supply

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Price Elasticity of Supply

  1. 1. Unit 1 Micro Price Elasticity of Supply
  2. 2. These are good connective phrases by contrast… A consequence of this might be … therefore… this might mean… on the other hand…this is because
  3. 3. Diagrams matter! Diagram must haves Fully labeled Original and new equilibrium Demand and supply the correct way round Well explained – you must explain why the curve has shifted, in detail Think about the elasticity – e.g. oil has inelastic demand and supply
  4. 4. Price elasticity of supply
  5. 5. The market for tractors is supplied by two firms, X and Y, each initially having 50 % of the market. A 10 % increase in the price of tractors leads to an increase in output from firm X of 10 % and from firm Y of 20 %. What is the price elasticity of supply of tractors in this market? Price elasticity of supply
  6. 6. The market for tractors is supplied by two firms, X and Y, each initially having 50 % of the market. A 10 % increase in the price of tractors leads to an increase in output from firm X of 10 % and from firm Y of 20 %. What is the price elasticity of supply of tractors in this market? Price change = 10%, total output change is 15% Therefore the price elasticity of supply = +1.5 Price elasticity of supply
  7. 7. Elasticity of supply
  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 Quantity Price Quantity D1 D2
  9. 9. 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 Quantity Price Quantity D1 D2 S1P1
  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 Quantity Price Quantity D1 D2 S1P1 D1 D2
  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 Quantity Price Quantity D1 D2 S1P1 D1 D2 S1
  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 Quantity Price Quantity D1 D2 S1P1 D1 D2 S1 P1 Q1
  13. 13. 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 Quantity Price Quantity D1 D2 S1P1 D1 D2 S1 P1 P2 Q1 Q2
  14. 14. Give three reasons why an industry’s supply curve might be price elastic in the short term Spare capacity High stock levels Short production times

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