Price elasticity of supply

1. Unit 1 Micro
Price Elasticity of
Supply

2. These are good connective phrases
by contrast…
A consequence of
this might be …
therefore…
this might
mean…
on the other
hand…this is because

3. Diagrams matter!
Diagram must haves
Fully labeled
Original and new equilibrium
Demand and supply the correct way round
Well explained – you must explain why the
curve has shifted, in detail
Think about the elasticity – e.g. oil has
inelastic demand and supply

4. Price elasticity of supply

5. The market for tractors is supplied by two firms, X and Y,
each initially having 50 % of the market.
A 10 % increase in the price of tractors leads to an increase
in output from firm X of 10 % and from firm Y of 20 %. What
is the price elasticity of supply of tractors in this market?
Price elasticity of supply

6. The market for tractors is supplied by two firms, X and Y,
each initially having 50 % of the market.
A 10 % increase in the price of tractors leads to an increase
in output from firm X of 10 % and from firm Y of 20 %. What
is the price elasticity of supply of tractors in this market?
Price change = 10%, total output change is 15%
Therefore the price elasticity of supply = +1.5
Price elasticity of supply

7. Elasticity of supply

8. When demand for a good increases, equilibrium price
stays the same. What is the elasticity of supply?
Sketch this situation in the supply and demand diagram
on the left (below)
Price
Quantity
Price
Quantity
D1 D2

9. When demand for a good increases, equilibrium price
stays the same. What is the elasticity of supply?
Sketch this situation in the supply and demand diagram
on the left (below)
Price
Quantity
Price
Quantity
D1 D2
S1P1

10. When there is an increase in demand for a product, the
rise in equilibrium price is large but the expansion in
quantity produced is small. What is the elasticity of
supply? Sketch the situation in the supply and demand
diagram on the right (below)
Price
Quantity
Price
Quantity
D1 D2
S1P1
D1 D2

11. When there is an increase in demand for a product, the
rise in equilibrium price is large but the expansion in
quantity produced is small. What is the elasticity of
supply? Sketch the situation in the supply and demand
diagram on the right (below)
Price
Quantity
Price
Quantity
D1 D2
S1P1
D1 D2
S1

12. When there is an increase in demand for a product, the
rise in equilibrium price is large but the expansion in
quantity produced is small. What is the elasticity of
supply? Sketch the situation in the supply and demand
diagram on the right (below)
Price
Quantity
Price
Quantity
D1 D2
S1P1
D1 D2
S1
P1
Q1

13. When there is an increase in demand for a product, the
rise in equilibrium price is large but the expansion in
quantity produced is small. What is the elasticity of
supply? Sketch the situation in the supply and demand
diagram on the right (below)
Price
Quantity
Price
Quantity
D1 D2
S1P1
D1 D2
S1
P1
P2
Q1 Q2

14. Give three reasons why an industry’s supply
curve might be price elastic in the short term
Spare
capacity
High stock
levels
Short
production
times