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Lectur 19

This document defines and explains the concept of elasticity of supply. Elasticity of supply measures the responsiveness of quantity supplied to changes in price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. An elastic supply has an elasticity greater than 1, an inelastic supply has an elasticity less than 1, and a unitary elastic supply has an elasticity equal to 1. The shape and position of the supply curve determines whether the supply is elastic, inelastic, or unitary elastic. Additionally, the longer the time period for adjustment, the more elastic the supply curve will be.

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42 views

Lectur 19

This document defines and explains the concept of elasticity of supply. Elasticity of supply measures the responsiveness of quantity supplied to changes in price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. An elastic supply has an elasticity greater than 1, an inelastic supply has an elasticity less than 1, and a unitary elastic supply has an elasticity equal to 1. The shape and position of the supply curve determines whether the supply is elastic, inelastic, or unitary elastic. Additionally, the longer the time period for adjustment, the more elastic the supply curve will be.

Uploaded by

leenusam
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Supply Elasticity

Elasticity of Supply,
Is the percentage change in quantity supplied associated with a percentage change in price.

Es = % Qs / % P

Es = QS X P

P0 Q0

Interpreting Elasticity of Supply


If
Es > 1 elastic supply

Es < 1 inelastic supply


Es = 1 unitary elastic supply

If the Supply curve is a straight line:


P Es > 1

If the supply curve cuts the price axis (Y), then supply is ELASTIC

Qs/ut

If the Supply curve is a straight line:


S

P
Es < 1

If the supply curve cuts the quantity axis (X), then supply is INELASTIC

Qs/ut

If the Supply curve is a straight line:


S

P
Es = 1

If the supply curve comes out of the origin, then supply is UNITARY ELASTIC

Qs/ut

Sections of Elasticity
Es > 1

Less Elastic

More Elastic Qs/ut

Sections of Elasticity
Es < 1

Less Inelastic

More Inelastic
Qs/ut

Time and Elasiticy of Supply


The longer the time period for adjustment, the more price elastic is the supply curve.

The longer the time allowed for adjustment to a Price, the more firms are able to figure out ways to increase or decrease production in an industry.

The longer the time allowed for adjustment to a Price, a greater amount of resources can flow into or out of an industry by means of expansion or contraction of existing firms.

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