POINT ELASTICITY
RECAP
(PED > 1) Price elasticity is less than one.
RECAP
(PED > 1) Price elasticity is less than one.
ELASTI
C
RECAP
Coefficient of the elasticity is less than 1
RECAP
Coefficient of the elasticity is less than 1
INELASTI
C
RECAP
When the percentage change in demand is equal
to the percentage change in price
RECAP
When the percentage change in demand is equal
to the percentage change in price
UNITARY ELASTIC DEMAND
RECAP
A small percentage change in price brings about a
change in quantity demanded from zero to infinity.
RECAP
A small percentage change in price brings about a
change in quantity demanded from zero to infinity.
PERFECTLY
ELASTIC
RECAP
The PED is =0 any change in price will not have
any effect on the demand of the product.
RECAP
The PED is = 0 any change in price will not have
any effect on the demand of the product.
PERFECTLY
INELASTIC
POINT
ELASTICITY
a) The midpoint elasticity is less than 1. (Ed < 1). Price reduction leads
to reduction in the total revenue of the firm.
b) The demand curve is linear (straight line), it has a unitary
elasticity at the midpoint. The total revenue is maximum at this
point.
c) Any point above the midpoint has elasticity greater than 1, (Ed > 1).
Price Elasticity of
Supply (PES)
The measure of the responsiveness of quantity to a change
in price. It is the percentage change in supply as compared
to the percentage change in price of a commodity.
PES = % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑑
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐e
Example:
Let's say the price of a certain good increases by 10%, and as
a result, the quantity supplied increases by 15%. Using the
formula:
PES = 10% / 15% = 1.5
Since the price elasticity of supply is greater than 1 (in this
case, 1.5), we would classify the supply as price elastic. This
implies that suppliers are responsive to changes in price by
adjusting their quantity supplied proportionally.
Example:
Let's say the price of a certain good increases by 10%, and as a
result, the quantity supplied increases by only 5%. Using the
formula:
PES = 5% / 10% = 0.5
Since the price elasticity of supply is less than 1 (in this case,
0.5), we would classify the supply as price inelastic. This
suggests that suppliers are not very responsive to changes in
price, and the quantity supplied changes proportionally less
than the change in price.
Example:
If the price elasticity of supply of soda is 0.60 and the price
increase by 2 percent, then the quantity supplied for soda
increases by how by?
%ΔQs = PES × %ΔP
In this case, the price elasticity of supply soda is given as 0.60,
and the price increases by 2 percent
%ΔQs = 0.60 × 2%
%ΔQs = 1.2%
Example:
If the price elasticity of supply of soda is 0.60 and the price
increase by 2 percent, then the quantity supplied for soda
increases by how by?
%ΔQs = PES × %ΔP
In this case, the price elasticity of supply soda is given as 0.60,
and the price increases by 2 percent
%ΔQs = 0.60 × 2%
%ΔQs = 1.2% ELASTIC
Determinants of Price Elasticity of Supply
Agarwal, P. (2020) said, price elasticity of supply can be influenced by the following factors:
1. Marginal Cost - If the cost of producing one more unit keeps rising as output rises
or marginal cost rises rapidly with an increase in output, the rate of output production
will be limited. The Price Elasticity of Supply will be inelastic - the percentage of
quantity supplied changes less than the change in price. If Marginal Cost rises slowly,
supply will be elastic.
2. Time - Over time price elasticity of supply tends to become more elastic. The
producers would increase the quantity supplied by a larger percentage than an
increase in price.
3. Number of Firms - The larger the number of firms, the more likely the supply is
elastic. The firms can jump in to fill in the void in supply
Determinants of Price Elasticity of Supply
Agarwal, P. (2020) said, price elasticity of supply can be influenced by the following factors:
4. Mobility of Factors of Production- If factors of production are movable, the price
elasticity of supply tends to be more elastic. The labor and other inputs can be brought
in from other location to increase the capacity quickly.
5. Capacity - If firms have spare capacity, the price elasticity of supply is elastic. The
firm can increase output without experiencing an increase in costs, and quickly with a
change in price.
Quiz Time
If the price elasticity of supply of cup noodles
is 0.60 and the price increase by 3 percent, then
the quantity supplied for cup noodles increases
by how by?
a) 0.60 percent. Show your solution
b) 0.20 percent
c) 1.8 percent
d) 18 percent
If a 4% increase in price of 1 pack of bread
leads to an increase in the quantity supplied of
8% describe the price elasticity.
Show your solution
Analysis of Price elasticity: _____________
