Elasticity and Its

Application
PRESENTED BY GROUP 4
  Elasticity of Supply
 Price Elasticity of Supply
 Types of Elasticity of Supply
Topics  Determinants of Elasticity of Supply
 The Elasticity of Supply Curves
Word Scramble
PPLSUY

Fundamental economic
concept that describes
the amount of specific
good or service that's
available to consumers
LASEYTICTI

 Measures the percentage change of one

economic variable in response to a
percentage change in another.
CIPRE SLACIEIYTT

 Measure the responsiveness to the

supply of a good or service after a
change in its market price.
YTCOMOMID

 It is a basic good that is used in

commerce that is
interchangeable with other
goods of the same type.
PUPLYS SEA
LCIITTY
 a measure of a
producer's ability to
cope effectively with
changes in demand.
Elasticity and Its
Application
PART 2: ELASTICITY OF SUPPLY
Elasticity of Supply

 The elasticity of supply establishes a

quantitative relationship between the supply
of a commodity and it's price. We can
express the numeral change in supply with
the change in the price of a commodity
using the concept of elasticity.
Price Elasticity
of Supply

 Measures the
responsiveness to the
supply of a good or
service after a change in
its market price.

 According to basic
economic theory, the
supply of a good will
increase when its price
rises. Conversely, the
supply of a good will
decrease when its price
decreases.
 Elasticity=%Change in quantity

MID-POINT %Change in price

ELASTICITY SUPPLY
FORMULA %Change in quantity
%Change in price
 QS1= Initial Quantity
QS2=New Quantity

MID-POINT
FORMULA P1= Initial Price
P2=New Price
 Example: Mang Rodel usually sells 30 kilos of apples per day in
the market at a price of 80 pesos per kilo, but because of the
approaching holiday season, the price of apples has increased
to 100 pesos per kilo. And because of this, Mang Rodel was
persuaded to buy 60 kilos. of apples per day

= 60 – 30 X 100 = 100 – 80 x100

30 + 60 80 + 100
2 ES = 66.67
2
22.22
= 30 X100 = 66.67 = 20
X100 = 22.22 ES = 3
45 90
Types of Elasticity
Perfectly Elastic Supply

This essentially means

Refers to goods that that any amount of a
have a price elasticity of good will be supplied at
supply value equal to the prevailing price, but
infinity. nothing is supplied below
this prevailing price.
 is when the PES formula equals zero. That is, there
Perfectly is no change in quantity supplied when the price
changes.
Inelastic Examples include products that have limited

Supply quantities, such as land or painting from

deceased artists.
 Less than When the change in supply is relatively less when
compared to the change in price, we say that the
Unit Elastic commodity has a relatively-less elastic supply.
In such a case, the price elasticity of supply
Supply assumes a value less than 1.
 Is referred to as supply that us perfectly responsive
Unit Elastic to price changes.
In other words, any change in the price of a good
Supply with unit elastic supply results in an equally
proportional change in quantity supplied.
More Elastic A price elasticity supply greater than one means
supply is relatively elastic, where the quantity
supplied changes by a larger percentage than
Supply the price change
Determinants of
Elasticity of Supply
Nature of the goods

In the context of
the most important
supply, substitute
determinant of
goods are those to
elasticity of supply is
which factors of
the availability of
production can most
substitutes.
easily be transferred.
The Definition of the Commodity

elasticity of supply also depends on The narrowly a commodity is defined

the definition of the commodity. the greater is its elasticity of supply.
Time

Time also exerts considerable The reason is easy to find out.

influence on the elasticity of The longer the time period, the
supply. Supply is more elastic easier it is to shift resources
in the long run than in the short among products, following a
run. change in their relative prices.
 If supply is to be increased it is necessary

The Cost of to attract resources from other industries.

This usually inv olves raising the prices of
these resources.

Attracting
Resources As their prices rise, cost of production also
increases so supply becomes relativ ely
inelastic. If these resources can be
obtained cheaply then supply is likely to
be relativ ely elastic.
The Level of
Price

 Elasticity of supply is also

likely to vary at different
prices. When the price of a
commodity is relatively high,
the producers are likely to
be supplying near the limits
of their capacity and
would, therefore, be unable
to make much response to
a still higher price.
 When the price is relatively
low, however, producers
may well have surplus
capacity which a higher
price would induce them to
use.
The Elasticity of
Supply Curves
 When the price
When the price When the price
elasticity of supply
elasticity of supply elasticity of supply
is 0, this means
is >1, the supply is is<1, the supply is
there is no change
elastic. inelastic.
in the prices.