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Elasticity of Supply By William and Doris

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The Anatomy of a Supply Graph Supply Price $$ Quantity of Supply 5 2030 4

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What is Elasticity of Supply? Price elasticity of supply measures the relationship between change in quantity supplied and a change in price. In other words, it measures the amount supply changes when price changes. If it is said to be INELASTIC, there will be a small change in supply due to a large price change. Supply does not change much when the price changes. If it is said to be ELASTIC, there will be a large change in supply due to a small price change. Supply changes a lot when price changes.

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Factors That Determine Elasticity of Supply Spare Capacity Stocks Ease of Factor Substitution Time Period

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So how do I know if it is Elastic or Inelastic? Economists use a formula to determine the elasticity of supply Percentage change in quantity supplied Percentage change in price = X= X If X>1, the product is elastic, meaning the If X<1, the product is inelastic, meaning the In graphical terms it would mean…

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Elastic Graph of Supply Supply Price $$ Quantity of Supply 5 20 50 4

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Inelastic Graph of Supply Supply Price $$ 5 1012 10

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Examples of Inelastic Petrol (gas) – The amount of petrol supplied would not change much when the price of petrol changes, therefore it is inelastic. Tickets (to a concert/sports match) – Tickets are printed in a fixed amount (there are only so many seats available), so no matter how much the price changes, the amount supplied should always stay the same. Tickets would be inelastic.

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Elastic Products Clothes – If the price of certain clothes drop, then the production (and therefore supply) of those clothes will drop too. Clothes would be elastic. Electronic goods (games, cameras, etc.) – If the price of a certain electronic, say, a games console were to drop, then production of the games console would drop too. Electronic goods = elastic.

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