SHAHI RAZ AKHTAR SHAHI RAZ AKHTAR PRICE ELASTICITY OF SUPPLY BS COMMERCE IST SEMISTER
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SHAHI RAZ AKHTARSHAHI RAZ AKHTAR
PRICE ELASTICITY OF SUPPLY
BS COMMERCEIST SEMISTER
MEASURES THE RESPONSIVENESS OF SUPPLY TO A CHANGE IN PRICE.
Price Elasticity of Supply
DEF:- THE RATIO BETWEEN % CHANGE IN QUANTITY SUPPLIED TO THE % CHANGE
IN PRICE.
Price Elasticity of Supply
Percentage Change in Quantity Supplied
Percentage Change in PricePES =
Remember:Es = coefficient of price elasticityQS = Quantity SuppliedP = Price
PES =% ∆QS
% ∆P
•PEs > 1 supply is elastic
•PEs < 1 supply is inelastic
•PEs = 1 Unitary Elastic
•PEs= ∞ Totally Elastic
•PEs= 0 Totally In-Elastic
Figure 1. Elastic Supply Curve
PRICE
P1
P2
0Q1 Q2
S
QUANTITY
Figure 2. Inelastic Supply Curve
PRICE
P1
P2
0Q1 Q2
S
QUANTITY
Figure 3. Unitary Supply Curve
PRICE
P1
P2
0Q1 Q2
S
QUANTITY
Figure 4. Perfectly Elastic Supply Curve
PRICE
P1
0
S
QUANTITY
Figure 5. Perfectly Inelastic Supply Curve
PRICE
P1
P2
0
S
QUANTITY
1- TIME 2- PRODUCTION CAPACITY 3- PRODUCER OR CHIEF 4- STORED PRODUCTS
FACTORS That affect PRICE ELASTICITY OF
SUPPLY
Problem #1
An individual used to raise 10 bags which sell on the market at a minimum of $8 each. For some reasons, the market price per bag reached $10. He decided to raise 20. Let us find out how elastic or responsive the production was to price.
Given variables?
Qs1 = 10P1 = $8 eachQs2 = 20 P2 = $10∆Qs = ? ; ∆P = ?PES = ?
Q2-Q1 20-10 10∆QS = = = = 1 Q1 10 10
P2-P1 10-8 2∆P = = = = 0.25 P1 8 8
∆Qs 1PES = = = 4 ∆ P 0.25
We conclude that the PEOS is 4 . So PEOS is used to see how responsive or
sensitive is supply of a good to change in price.
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