1. AS Economics Mr. Durham durham.j@shishialevel.cn

2. By the end of this lesson, students should be able to:
Lesson Objectives
By the end of this lesson, students should be able to:
Define the Price Elasticity of Supply (PES)
Calculate the PES
Interpret the PES
Identify the influences on PES

3. THE PRICE ELASTICITY OF SUPPLY
Price elasticity of supply is a measure of the extent to which the quantity supplied of a good changes when the price of the good changes.
To determine the price elasticity of supply, we compare the percentage change in the quantity supplied with the percentage change in price.
Elasticity is a subject that can overwhelm students by the many details. Be sure to stress the common features of all the different elasticities. All elasticities measure how strongly people respond to a change in some factor; all elasticities use percentage changes; and all elasticities divide the percentage change in the quantity by the percentage change in the relevant factor. Of these features, the most important is the fact that elasticities measure responsiveness. Stress this fact and your students will find it significantly easier to comprehend all the myriad details.

4. THE PRICE ELASTICITY OF SUPPLY
Elastic and Inelastic Supply
Supply is perfectly elastic if an almost zero percentage change in price brings a very large percentage change in the quantity supplied.
Supply is elastic if the percentage change in the quantity supplied exceeds the percentage change in price.

5. THE PRICE ELASTICITY OF SUPPLY
Supply is unit elastic if the percentage change in the quantity supplied equals the percentage change in price.
Supply is inelastic if the percentage change in the quantity supplied is less than the percentage change in price.
Supply is perfectly inelastic if the percentage change in the quantity supplied is zero when the price changes.

6. THE PRICE ELASTICITY OF SUPPLY
Figure 5.5(a) shows perfectly elastic supply.
1. A small rise in the price,
2. Increases the quantity supplied by a very large amount,
3. Supply is perfectly elastic.

7. THE PRICE ELASTICITY OF SUPPLY
Figure 5.5(b) shows an elastic supply.
1. A 10% rise in the price of a book,
2. Increases the quantity of books supplied by 20%.
3. The supply of books is elastic.

8. THE PRICE ELASTICITY OF SUPPLY
Figure 5.5(c) shows a unit elastic supply.
1. A 10% rise in the price of fish,
2. Increases the quantity of fish supplied by 10%.
3. The supply of fish is unit elastic.

9. THE PRICE ELASTICITY OF SUPPLY
Figure 5.5(d) shows an inelastic supply.
1. A 20% rise in the price of a hotel room,
2. Increases the quantity of hotel rooms supplied by 10%.
3. The supply of hotel rooms is inelastic.

10. THE PRICE ELASTICITY OF SUPPLY
Figure 5.5(e) shows a perfectly inelastic supply.
1. A small rise in the price of a beachfront lot,
2. The quantity of beachfront lots supplied increases by 0%.
3. The supply of beachfront lots is perfectly inelastic.

11. THE PRICE ELASTICITY OF SUPPLY
Influences on the Price Elasticity of Supply
Time Scale
Spare Capacity
Level of Stocks
How Substitutable Factors are
Barriers to entry to the market

12. THE PRICE ELASTICITY OF SUPPLY
Influences on the Price Elasticity of Supply
Time Scale
In the SR, supply is more price inelastic, because producers cannot quickly increase supply
Spare Capacity
If the firm is operating at full capacity, there is no space left to increase supply. If there are spare resources (spare capacity), supply can be increased quickly

13. THE PRICE ELASTICITY OF SUPPLY
Influences on the Price Elasticity of Supply
Level of Stocks
If goods can be stored, such as stocks, firms can stock them and increase market supply easily (in response to a change in price). Storable = More elastic supply
How Substitutable Factors are
If labour and capital are mobile, supply is more price elastic because resources can be reallocated to producing a good where extra supply is needed

14. THE PRICE ELASTICITY OF SUPPLY
Influences on the Price Elasticity of Supply
Barriers to entry to the market
High barriers to entry into a market means the supply is more price inelastic, because it is difficult for new firms to enter and supply the market.

15. THE PRICE ELASTICITY OF SUPPLY
Time Elapsed Since Price Change
As time passes after a price change, producers find it easier to change their production plans, so supply becomes more elastic.
Storage Possibilities
The supply of a storable good is highly elastic.
The cost of storage is the main influence on the elasticity of supply of a storable good.

16. THE PRICE ELASTICITY OF SUPPLY
Computing the Price Elasticity of Supply
Price elasticity of supply
Percentage change in quantity supplied
Percentage change in quantity price =
If the price elasticity of supply is greater than 1, supply is elastic.
If the price elasticity of supply equals 1, supply is unit elastic.
If the price elasticity of supply is less than 1, supply is inelastic.

17. THE PRICE ELASTICITY OF SUPPLY
Figure 5.6 shows how to calculate the price elasticity of supply.
Percentage change in the price equals $60/$40 × 100, or 66.67%.
Percentage change in the quantity equals 18 bouquets/15 bouquets × 100, or 120%.

18. THE PRICE ELASTICITY OF SUPPLY
The price elasticity of supply equals the Percentage change in the quantity ÷ Percentage change in the price.
The price elasticity of supply equals 120% ÷ 66.67%.
The price elasticity of supply is 1.8.

19. Handout Activity with review Elasticity Questions
Homework
Handout Activity with review Elasticity Questions
Bring to class tomorrow
So I can record completion