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# PRICE ELASTICITY OF SUPPLY WITH EXAMPLES

Published on: Mar 4, 2016
Source: www.slideshare.net

#### Transcripts - PRICE ELASTICITY OF SUPPLY WITH EXAMPLES

• 1. SHAHI RAZ AKHTAR PRICE ELASTICITY OF SUPPLY BS COMMERCE IST SEMISTER
• 2. <ul><li>MEASURES THE RESPONSIVENESS OF SUPPLY TO A CHANGE IN PRICE. </li></ul>Price Elasticity of Supply DEF:- THE RATIO BETWEEN % CHANGE IN QUANTITY SUPPLIED TO THE % CHANGE IN PRICE.
• 3. Price Elasticity of Supply Remember: Es = coefficient of price elasticity QS = Quantity Supplied P = Price PES = % ∆Q S % ∆P Percentage Change in Quantity Supplied Percentage Change in Price PE S =
• 4. <ul><li>PE s > 1 supply is elastic </li></ul><ul><li>PE s < 1 supply is inelastic </li></ul><ul><li>PEs = 1 Unitary Elastic </li></ul><ul><li>PEs= ∞ Totally Elastic </li></ul><ul><li>PEs= 0 Totally In-Elastic </li></ul>
• 5. Figure 1. Elastic Supply Curve PRICE P1 P2 0 Q1 Q2 S QUANTITY
• 6. Figure 2. Inelastic Supply Curve PRICE P1 P2 0 Q1 Q2 S QUANTITY
• 7. Figure 3. Unitary Supply Curve PRICE P1 P2 0 Q1 Q2 S QUANTITY
• 8. Figure 4. Perfectly Elastic Supply Curve PRICE P1 0 S QUANTITY
• 9. Figure 5. Perfectly Inelastic Supply Curve PRICE P1 P2 0 S QUANTITY
• 10. <ul><li>1- TIME </li></ul><ul><li>2- PRODUCTION CAPACITY </li></ul><ul><li>3- PRODUCER OR CHIEF </li></ul><ul><li>4- STORED PRODUCTS </li></ul>FACTORS That affect PRICE ELASTICITY OF SUPPLY
• 11. Problem #1 <ul><li>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. </li></ul>
• 12. Given variables? <ul><li>Qs1 = 10 </li></ul><ul><li>P1 = \$8 each </li></ul><ul><li>Qs2 = 20 </li></ul><ul><li>P2 = \$10 </li></ul><ul><li>∆ Qs = ? ; ∆P = ? </li></ul><ul><li>PES = ? </li></ul>
• 13. Q2-Q1 20-10 10 ∆ QS = = = = 1 Q1 10 10 P2-P1 10-8 2 ∆ P = = = = 0.25 P1 8 8
• 14. ∆ Qs 1 PES = = = 4 ∆ P 0.25 <ul><li>We conclude that the PEOS is 4 . </li></ul><ul><li>So PEOS is used to see how responsive or sensitive is supply of a good to change in price. </li></ul>
• 15. [email_address] PATHANKING 12 @YAHOO.COM THE END