supply & elasticity of supply
TRANSCRIPT
PRESENTATION
ELASTICITY OF
SUPPLY
Definition Of Price Elasticity Of supply
• The change in the quantity supplied of a product due to a change in its price is known as Price elasticity of supply.
Kinds Of Price Elasticity Of supply
1) Perfectly elastic supply
2) Relatively elastic supply
3) Elasticity of supply equal to utility
4) Relatively inelastic supply
5) Perfectly inelastic supply
Let Us See Some Views On Them
Perfectly elastic supply
P
R
I
C
E
y
0 x
Perfectly elastic
supply curve
S S
When the supply for a product changes –increases or decreases even when there is no change in price, it is known as perfect elastic supply.
Relatively elastic supply
Relatively elastic supply
curve
P
R
I
C
E
supply0 x
yWhen the proportionate change in supply is more than the proportionate changes in price, it is known as relatively elastic supply.
S
S
Elasticity of supply equal to utility
Elasticity of
supply equal
to utility curve
y
x0 supply
P
R
I
C
E
When the proportionate change in supply is equal to proportionate changes in price, it is known as unitary elastic supply
S
Relatively inelastic supply
Relatively inelastic
supply curve
XO
Y
supply
P
R
I
C
E
When the proportionate change in supply is less than the proportionate changes in price, it is known as relatively inelastic supply
S
S
Perfectly inelastic supply
supplyS
Perfectly inelastic
supply curve
0
Y
X
P
R
I
C
E
When there is no change in the quantity supplied with the change in its price, it is perfectly inelastic supply
S
ALL KINDS OF supply CAN BE SHOWN IN ONE DIAGRAM AS FOLLOW
SS1
S5
Y
X0
supply
P
R
I
C
E
WHERES1) Perfectly elastic
supplyS2)Relatively elastic
supplyS3)Elasticity of supply
equal to utilityS4)Relatively inelastic
supplyS5)Perfectly inelastic
supply
S5S2
S3
S4
Measurement Of Price Elasticity Of supply
There are two methods like
1. Percentage method or proportionate method
2. Geometric method or point method
1 Percentage method or proportionate method
• (Es) = % Change in Quantity Supplied % Change in Price
• ES = ∆Q/ ∆P*P/Q
• ∆Q= change in quantity supplied.
• ∆P= change in price
• Q= initial quantity supplied.
• P= initial price of the good
Geometric method or point method
Es= Difference b/w Qty and intersect on X axis
Difference between Qty and origin
EXAMPLE
• Price of a good falls from Rs.15 to Rs.10 and the supply decreases from 100 units to 50 units. Calculate Es.
• Q=100 P= 15
• Q1=50 P1=10
• Es= P/Q*∆Q/∆P = 15/100*50/5 = 1.5
• Es> 1, it is a case of elastic supply
(5) Factors Affecting Price Elasticity Of supply
Factors Affecting Price Elasticity Of supply
• Time Factor
1.Short period - relatively less elastic
2. Long period – more elastic
. Nature of the commodity
1. Perishable goods – relatively less elastic
2. Durable goods – elastic supply
. Technique of production
1. Complex technique - inelastic
2. Simple technique – elastic
.NATURE OF INPUTS USED 1.Commonly used factors – elastic2.Specialised factors –inelastic
. Future price expectation1.price increase- inelastic 2. price decrease – elastic
. Natural constraint less elastic
. Risk Taking1.Willing to take risk- more elastic2. Unwilling to take risk- less elastic
(6) Practical Importance of the Concept of Price Elasticity Of
supply
Practical Importance of the Concept of Price Elasticity Of supply
• The concept is helpful in taking Business Decisions
• Importance of the concept in formatting Tax Policy of the government
• For determining the rewards of the Factors of Production
• To determine the Terms of Trades Between the Two Countries
Thanking You All