1. Today’s LEQ: How do you measure a seller’s responsiveness to a change in price?
Elasticity of Supply

2. Reminder… What is Elasticity?
Measures how much buyers and sellers respond to changes in market conditions

3. Elasticity of Supply
Measures how much quantity supplied (QS) responds to changes in price
Looks at the behavior of producers

4. Elastic vs. Inelastic Supply
Supply for a g/s = elastic if QS changes substantially
Supply for a g/s = inelastic if QS changes slightly

5. Determinants of Supply Elasticity
Storability: Can this good be stored for a later release if price increases?
Bread vs. T-shirts
Flexibility: Is it easy to ramp up production?
Wine vs. Books
TIME!: As more time passes, the supply of g/s becomes more elastic
Market (today, now): Inelastic
Short Run: a little bit more elastic
Long Run: elastic

6. Are you picking up what I’m putting down?
Using your understanding of the determinants of demand elasticity, rank the following g/s in order of most elastic to least elastic. Be prepared to defend your placement.
Apples
Cars
Haircuts
Beachfront Property
Phillies Tickets
Books

7. How do you calculate the elasticity of supply?

8. Got it?
For example, suppose the price of tomatoes rises by 10%. In response, the QS of tomatoes also increases by 10%. Calculate the price elasticity of supply and determine whether it is elastic, inelastic, or unit elastic.

9. One more…
Assume the price of corn rises by 20% and this causes suppliers to increase the quantity of corn supplied by 40%.
Calculate the price elasticity of supply
In this case, is supply elastic or inelastic?
Draw a correctly labeled graph of a supply curve illustrating the most extreme case of the category of elasticity you found in part b (either perfectly elastic or perfectly inelastic supply).
What would likely be true of the availability of inputs for a firm with the supply curve you drew in part c? Explain.