Elasticity of Elasticity of SupplySupplyUnit 2Unit 2

Elasticity of SupplyElasticity of SupplyHow How responsiveresponsive the the change in change in quantity suppliedquantity supplied is when is when there is there is change in pricechange in price

EquationEquation::Elasticity of SupplyElasticity of Supply

% Change in Quantity Supplied% Change in Quantity Supplied

% Change in Price% Change in Price

Elastic SupplyElastic Supply

SignificantSignificant change change in quantity in quantity supplied with change in pricesupplied with change in price

When Elasticity is When Elasticity is >1>1

Elastic DemandElastic Demand

10% change in price10% change in price

20% change in quantity 20% change in quantity suppliedsupplied

= 2= 2

EElastic Supplylastic Supply

PricePrice

QuantityQuantity

SSNot steepNot steep

ElasticElastic Supply Supply ExamplesExamples

Products that Products that can be made:can be made:

QuicklyQuickly

CheaplyCheaply

With a few, With a few, readily readily available available resourcesresources

Inelastic SupplyInelastic Supply

MinimalMinimal change change in quantity in quantity supplied with change in pricesupplied with change in price

When Elasticity is When Elasticity is <1<1

Inelastic DemandInelastic Demand

20% change in quantity price20% change in quantity price

10% change in quantity 10% change in quantity suppliedsupplied

= .5= .5

IInelastic Supplynelastic Supply

PricePrice

QuantityQuantity

SS

Very Very SteepSteep

InelasticInelastic Supply Supply ExamplesExamples

Production of Production of these G&S take a these G&S take a lot of:lot of:

TimeTime

MoneyMoney

Resources that Resources that are not readily are not readily availableavailable

PerfectlyPerfectly Inelastic Inelastic SupplySupply

NONO change change in quantity supplied in quantity supplied with a change in pricewith a change in price

Quantity supplied cannot be Quantity supplied cannot be increasedincreased

PerfectlyPerfectly Inelastic Inelastic SupplySupply

PricePrice

QuantityQuantity

SS

Qty Qty supplied supplied

will never will never change…change…

unless you unless you shift the shift the

curvecurve

Unitary ElasticUnitary Elastic

% Change in Quantity % Change in Quantity SuppliedSupplied = = % Change in Price % Change in Price

Elasticity Elasticity = 1= 1