mr. rey belen price elasticity of supply. supply price and quantity demanded are directly related to...
TRANSCRIPT
Supply
Price and Quantity Demanded are directly related to each other.
An increase in price causes the quantity demanded to also increase, all other things being equal.
The coefficient of price elasticity of supply is defined as:
Remember:Es = coefficient of price elasticityQD = Quantity SuppliedP = Price
The coefficient of price elasticity of supply is equal to the percentage change in quantity supplied divided by the percentage change in price.
WHERE:∆Qs = QS2 – QS1 ∆P = P2 – P1
%∆Qs = Qs2 – Qs1 Qs
Qs = Qs2 + Qs1 2
𝐸𝑆 =𝑄𝑆2 − 𝑄𝑆1𝑄𝑆1+ 𝑄𝑆1 2𝑃2 − 𝑃1𝑃2 − 𝑃12
𝐸𝑆 = %∆𝑆%∆𝑃
Elastic Supply
A given percentage change in price results in a larger percentage change in quantity supplied.
An increase in price from P1 to P2 causes a more than proportionate increase in quantity supplied from Q1 to Q2.
Inelastic Supply
A given percentage change in price results in a smaller percentage change in quantity supplied.
An increase in price from P1 to P2 causes a less than proportionate increase in quantity supplied from Q1 to Q2.
Unitary Supply
A given percentage change in price results in an equal percentage change in quantity supplied.
An increase in price from P1 to P2 causes a proportionate increase in quantity supplied from Q1 to Q2.
Perfectly Elastic Demand
Even without a change in price, there is an infinitely large percentage change in quantity supplied.
Producers will be willing to supply any quantity at a given price
Perfectly Inelastic Demand
A given percentage change in price results in no change in quantity supplied.
A change in price from P1 to P2 causes no change in quantity supplied.