1. Elasticity of Supply

2. Guiding Questions
What is the difference between elastic supply and inelastic supply?
What makes a good or service have elastic or inelastic supply?

3. THE ELASTICITY OF SUPPLY
The elasticity of supply is a measure of how much the quantity supplied of a good responds to a change in the price of that good.

4. Elastic vs. Inelastic Supply
(1) When supply is elastic, producers can increase production without a rise in cost or a time delay
(2) When supply is inelastic, firms find it hard to change their production levels in a given time period.
Positive value for price elasticity of supply because supply rises as price increases

5. Brainstorming with the idea of elasticity of supply
What factors do you think will make supply of a good/service elastic? That is, what factors make it easy for suppliers to increase supply of their product without a rise in cost or time delay?
What factors do you think will make supply of a good/service inelastic? That is, what factors make it hard for suppliers to increase supply of their product without a rise in cost or time delay?
Need to think from the business perspective!

6. What Determines Supply Elasticity?
1. Ability of Suppliers to change production
Factor substitution possibilities
Can the factors of production be switched easily when there is a change in demand?
When factor substitution is possible and can be achieved at low cost, supply will be elastic
When factors are highly specialized, substitution may be harder and thus supply will be inelastic
Resources are cheap and quick to come by
Supply more elastic when there is spare capacity and a high level of unsold stocks

7. Determinants of Elasticity of Supply
2. The time frame allowed
Momentary period (fixed supply)
Short run (inelastic supply)
Long run (elastic supply)

8. Decide on the PeS oil Fresh salmon Football stadium Reminder:
PeS shows whether firms can respond to a rise in price by increasing their supply
Elastic = easy to increase Supply without cost and time issues.
Inelastic = harder to change supply
Flu shots
New houses

9. Figure 6 The Price Elasticity of Supply
(b) Inelastic Supply
Price
Supply
110 $5
100 4
Quantity
leads to a small increase in quantity supplied.
Copyright©2003 Southwestern/Thomson Learning

10. Figure 6 The Price Elasticity of Supply
(d) Elastic Supply
Price
Supply $5
200 4
100
Quantity
leads to a large increase in quantity supplied.
Copyright©2003 Southwestern/Thomson Learning

11. Decide in each of the following cases a
Decide in each of the following cases a. whether supply is likely to be elastic or inelastic b. Why c. Draw an approximate supply curve based on your decision
Pork (2 months time frame)
Paper clips (1 month time frame)
Fresh strawberries (in summer)
Neck ties (1 week time frame)
Canned peas (1 month time frame)
Aeroplanes (1 month time frame)
World Series shirts (1 month time frame)