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Lecture 7

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Lecture 7

Uploaded by

phmb42bp9x
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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4.

5 Individual Supply VS Market Supply

 The market supply is the sum of all producers’


quantities supplied of a good at each price.

Quantity supplied
Price Producer Producer Producer Market
A B C
1 2 1 3 6
5 5 4 4 13
4.6 Price Elasticity of Supply

 The price elasticity of supply measures the


responsiveness of quantity supplied to a
change in price of goods and services.

ES = Percentage change in quantity supplied


Percentage change in price

ES = %Q ES = Q P
%P Q ÷ P
4.6 Price Elasticity of Supply

ES = Q P
Q ÷ P

 Q is the change in quantity supplied


Q is the quantity supplied (original)
 P is the change in price
P is the price (original)

The price elasticity of demand is usually a positive number


4.6 Price Elasticity of Supply
If the price of a good rises from $10 to $20 and the
quantity supplied was fixed at 30. Find the price
elasticity of supply.

ES = Q P
Q ÷ P
30-30 20-10
= ÷
30 10
= 0 ÷ 1 Perfectly
inelastic
= Zero supply
4.6 Price Elasticity of Supply
Px
Perfectly inelastic supply curve

P2

P1

Q1 QSx

There is no change in quantity supplied even


there is change in price of the goods.
4.6 Price Elasticity of Supply

If the price of a good increased from $10 to $20 and the


quantity supplied increased from 30 to 33. Find the
price elasticity of supply.

ES = Q P
Q ÷ P
33-30 20-10
= ÷
30 10
= 0.1 ÷ 1 Inelastic
= 0.1 supply
4.6 Price Elasticity of Supply
Px
Inelastic supply curve
P2

P1

Q1 Q2 QSx
4.6 Price Elasticity of Supply

If the price of a good increased from $18 to $20 and the


quantity supplied increased from 30 to 33. Find the
price elasticity of supply.

ES = Q P
Q ÷ P
33-30 20-18
= ÷
30 18
= 0.1 ÷ 0.1 Unit
elastic
= 1 supply
4.6 Price Elasticity of Supply
Px
Unit elastic supply curve
P2
P1

Q1 Q2 QSx
4.6 Price Elasticity of Supply

If the price of a good increased from $18 to $20 and the


quantity supplied increased from 30 to 39. Find the
price elasticity of supply.

ES = Q P
Q ÷ P
39-30 20-18
= ÷
30 18
= 0.3 ÷ 0.1 Elastic
= 3 supply
4.6 Price Elasticity of Supply
Px
Elastic supply curve
P2
P1

Q1 Q2 QSx
4.6 Price Elasticity of Supply

If the price of a good is fixed at $10 and the quantity


supplied increases from 20 to 40. Find the price
elasticity of supply.

ES = Q P
Q ÷ P
40-20 10-10
= ÷
20 10
= 1 ÷ 0 Perfectly
elastic
=  supply
4.6 Price Elasticity of Supply

Px

Perfectly elastic supply curve


P

Q1 Q2 QSx

There is change in quantity supplied even there is no


change in price of the goods.
4.6 Price Elasticity of Supply

Type of Coefficient Description


ES of ES
Perfectly There is no change in quantity
inelastic Zero supplied and there is change in the
supply price
Inelastic %QS > %P
>1
supply
Unit
%QS = %P
elastic 1
supply
Elastic %QS < %P
<1
supply

Perfectly
There is change in quantity supplied
elastic 
and there is no change in the price
supply
Q: Mark the following statements () or ()

1. There is an inverse relationship between the price


of the good and its quantity supplied.
2. If the supply curve is a straight line parallel to the
vertical axis, it is a perfectly inelastic supply.
3. If the supply curve is a straight line parallel to the
horizontal axis, it is an elastic supply.
4. The elasticity coefficient equals to infinity in
perfectly inelastic supply.
Q: Mark the following statements () or ()

5. The elasticity coefficient is greater than one in elastic


supply.
6. The elasticity coefficient equals to zero in perfectly
inelastic supply.
7. In elastic supply the percentage change in quantity
supplied is greater than the percentage change in price.
8. The elasticity coefficient equals to one in unit inelastic
supply.
If the price of sugar increased by 40% and the quantity
supplied increased by 10%. Find the price elasticity of
supply.

ES = %Q
%P
10
=
40
= 0.25
Assuming a good is sold at a price of $9 per unit, and the
quantity supplied in the market is 500 units. The price
increases to $10, so the supply for that good increased to
600 units. Find the elasticity of supply?

ES = Q P
Q ÷ P

600-500 10-9
= ÷
500 9
= 0.2 ÷ 0.1
= 2

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