Elasticity Of Supply ELASTICITY OF SUPPLY Measures theresponsiveness of quantity supplied to changes in price.

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Presentation transcript:

Elasticity Of Supply

ELASTICITY OF SUPPLY Measures theresponsiveness of quantity supplied to changes in price

ELASTICITY COEFFICIENT Percentage change formula= Esupply = %  Q / %  P

Price Elasticity of Supply CoefficientElasticityExplanationTime Period E(p) <1InelasticIf prices rise, firms are unable to be very responsive Short Run or Momentary E(P) =1UnitaryFirms can be equally responsive to the price change E(p) > 1ElasticIf price rises, firms can be very responsive Long Run

Supply Elasticity Over Time Three Key Time Periods 1.Momentary One given moment in time Quantity supplied cannot be changed Supply is perfectly inelastic E.G. Farmers supply of milk on a particular day regardless of price 2.Short Run At least one factor is fixed Quantity supplied can change a little Supply is inelastic E.G. Price of milk increases the farmer can hire more workers and milk more cows 3.Long Run No factors are fixed Quantity supplied can be changed a lot Supply is elastic E.G. Price increases farmer can buy more land, build a bigger shed and buy new tractors to expand production of milk

ELASTICITY OF SUPPLY S P Q Es = 0 Perfectly inelastic Momentary Term

ELASTICITY OF SUPPLY Q P S Es<1 RELATIVELY INELASTIC SHORT TERM SUPPLY

ELASTICITY OF SUPPLY P Q S Esupply = 1 UNITARY ELASTICITY

ELASTICITY OF SUPPLY Q P S Es > 1 RELATIVELY ELASTIC LONG TERM SUPPLY

The Long Run In the long run there are no fixed inputs Price elasticity of supply is elastic in the long run. This is because firms can vary all of their inputs to respond to changes in price and also, firms can enter and exit the industry.

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