1. Unit 2: Supply and Demand1

2. Price Elasticity of Supply
Topic 2.4-
Price Elasticity of Supply

3. Price Elasticity of Supply (SED)
Measures how sensitive quantity supplied is to a change in price
Teacher Note- Make sure students don’t mention consumers when answering the question.
Do you think that the SUPPLY of fidget spinners is inelastic or elastic? Why?

4. The supply of fidget spinner is elastic
The supply of fidget spinner is elastic. Manufactures were able to make them quickly so the quantity supplied was very sensitive to a change in price.

5. Price Elasticity of Supply
Elasticity of supply shows how sensitive producers are to a change in price.
Elasticity of supply is based on time limitations.
Producers need time to produce more.
Inelastic = Insensitive to a change in price
Most goods have Inelastic supply in the short-run
Elastic = Sensitive to a change in price
Most goods have elastic supply in the long-run
Perfectly Inelastic Supply= QS doesn’t change Set quantity supplied (Vertical line)

6. Inelastic Supply Elastic Supply
General Characteristics of Inelastic Supply:
Hard to produce
High barriers to entry (few firms)
High cost or specialized inputs
Hard to switch from producing alternative goods
Elasticity coefficient less than 1
General Characteristics of Elastic Supply:
Easier to produce
Low barriers to entry (many firms)
Low cost or generic inputs
Easy to switch from producing alternative goods
Elasticity coefficient greater than 1

7. Elasticity Visualized
Perfectly
Inelastic
Elasticity
Coefficient 0
Relatively
Inelastic
Elasticity
Coefficient <1
Unit
Elastic
Elasticity
Coefficient1
Relatively
Elastic
Elasticity
Coefficient >1
Perfectly
Elastic
Elasticity
Coefficient ∞ 7

8. Calculate the SED from A to B and identify if the supply is relatively elastic or relatively inelastic (show your work)
Price
$50
$40
$30
$20
$10
Supply B
+1.5 = .75 = (35-20)/20
(30-20)/20
Answer = +1.5 A Q

9. Practice Questions
Which of the following must be true for original Michelangelo sculptures?
The demand is relatively elastic
The supply is perfectly elastic
The demand is perfectly inelastic
The supply is perfectly inelastic
The demand is perfectly elastic
Answer: D 9