Economics
Price elasticity of supply
Price elasticity of supply measures the responsiveness of the quantity supplied of a good to a change in its price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. A high price elasticity of supply indicates that producers can quickly adjust their output in response to price changes, while a low elasticity suggests that producers are less able to adjust their output in the short run.
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11 Key excerpts on "Price elasticity of supply"
eBook - PDF- William Boyes, Michael Melvin(Authors)
- 2015(Publication Date)
- Cengage Learning EMEA(Publisher)
Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 20-3 The Price elasticity of supply The Price elasticity of supply is a measure of how much sellers adjust the quantity of a good or service that they offer for sale when the price of that good changes. The Price elasticity of supply is the percentage change in the quantity supplied of a good or service divided by the percentage change in the price of that good or service, everything else held constant. The Price elasticity of supply is usually a positive number because the quantity supplied typically rises when the price rises. Supply is said to be elastic over a price range if the Price elasticity of supply is greater than 1 over that price range. It is said to be inelastic over a price range if the Price elasticity of supply is less than 1 over that price range. 20-3a Price elasticity of supply and the Shape of the Supply Curve The Price elasticity of supply is either zero or a positive number. A positive Price elasticity of supply means that as the price of an item rises, the quantity supplied rises. The Price elasticity of supply is zero for goods whose quantities cannot change. This is illustrated in Figure 4(a), where supply is a vertical line. Land surface, Monet paintings, Beethoven symphonies, and John Lennon’s songs are all fixed in quantity. Because Monet, Beethoven, and John Lennon are dead, no matter what happens to price, the quantity of their products cannot change. Figure 4(b) shows a perfectly elastic supply curve, a horizontal line. The horizontal line means that the quantity supplied can be any amount at the existing price. It is difficult to pro-vide an example of a good with a perfectly elastic supply.
eBook - PDFEconomics
Made Simple
- Geoffrey Whitehead(Author)
- 2014(Publication Date)
- Made Simple(Publisher)
For instance, a Finance Minister who is about to impose a tax of 10 per cent on some commodity with a view to raising revenue would like to know in advance the probable contraction in demand that his new tax will inevitably cause. The extension and contraction of demand and supply with changes in price has been termed the 'price elasticity of demand and supply'. Price elasticity of demand is the responsiveness of the quantity demanded of a particular good to a small change in its price. Price elasticity of supply is the responsiveness of the quantity supplied of a particular good to a small change in its price. Since responsiveness changes at different points along most demand curves, price elasticity always refers to particular points along the curve—which is the same as saying it refers to a particular price. Thus the elasticity of demand for a commodity at £1.00 per unit might be different from its elasticity of demand at £0.50 per unit. Elasticity of demand and elasticity of supply are relative measures, not absolute measures. Measuring change in absolute terms is not very helpful. As an example, if we lower the price of petrol by 1 per cent and as a result sell 40000 litres more per week, this absolute figure sounds impressive. If we then compare it with weekly sales of 40 million litres we see that sales actually only rose by 0.1 per cent. The percentage figure gives us a much better idea of what really happened—an insignificant increase in business as a result of the price cut. The usual formal for discovering price elasticities is Percentage change in quantity demanded Price elasticity of demand ( or su PP lie ^) (or supply) Percentage change in price Besides price elasticity of demand it is possible to have income elasticity of demand, i.e. the responsiveness of demand to changes in income; and population Elasticity of Demand and Supply 125 elasticity of demand, i.e. the responsiveness of demand to changes in population.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
percentage change in the quantity demanded or supplied percentage change in the quantity demanded of a good or service divided the percentage change in price percentage change in the quantity supplied divided by the percentage change in price manner in which the tax burden is divided between buyers and sellers when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied the percentage change in hours worked divided by the percentage change in wages the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance Chapter 5 | Elasticity 127 KEY CONCEPTS AND SUMMARY 5.1 Price Elasticity of Demand and Price elasticity of supply Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. We compute it as the percentage change in quantity demanded (or supplied) divided by the percentage change in price. We can describe elasticity as elastic (or very responsive), unit elastic, or inelastic (not very responsive). Elastic demand or supply curves indicate that quantity demanded or supplied respond to price changes in a greater than proportional manner. An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied. A unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied. 5.2 Polar Cases of Elasticity and Constant Elasticity Infinite or perfect elasticity refers to the extreme case where either the quantity demanded or supplied changes by an infinite amount in response to any change in price at all.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Price elasticity is the ratio between the percentage change in the quantity demanded (Qd) or supplied (Qs) and the corresponding percent change in price. The price elasticity of demand is the percentage change in the quantity demanded of a good or service divided by the percentage change in the price. The Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. 108 Chapter 5 | Elasticity This OpenStax book is available for free at http://cnx.org/content/col12190/1.4 We can usefully divide elasticities into three broad categories: elastic, inelastic, and unitary. An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand or inelastic supply. Unitary elasticities indicate proportional responsiveness of either demand or supply, as Table 5.1 summarizes. If . . . Then . . . And It Is Called . . . % change in quantity > % change in price % change in quantity % change in price > 1 Elastic % change in quantity = % change in price % change in quantity % change in price = 1 Unitary % change in quantity < % change in price % change in quantity % change in price < 1 Inelastic Table 5.1 Elastic, Inelastic, and Unitary: Three Cases of Elasticity Before we delve into the details of elasticity, enjoy this article (http://openstaxcollege.org/l/Super_Bowl) on elasticity and ticket prices at the Super Bowl. To calculate elasticity along a demand or supply curve economists use the average percent change in both quantity and price.
eBook - PDFMicroeconomics
Theory and Applications
- Edgar K. Browning, Mark A. Zupan(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
At the opposite extreme, if supply is entirely unresponsive to price, the supply curve is vertical and the elasticity of supply is equal to zero. For example, no matter how high the price gets, it is impossible to produce more original Picasso paintings (although several imposters have attempted to copy the dead artist’s style and pass off the result as Picasso originals). The responsiveness of the quantity of Picasso paintings supplied to increases (or decreases) in the price of Picasso paintings is thus zero. cross-price elasticity of demand a measure of how responsive consumption of one good is to a change in the price of a related good Price elasticity of supply a measure of the responsiveness of the quantity supplied of a commodity to a change in the commodity’s own price 38 Chapter Two • Supply and Demand • Finally, as in the case of elasticity of demand, when the ratio of the percentage change in quantity supplied to the percentage change in price is greater than unity, we say that supply is elastic. When supply is elastic, an increase in price produces a more than proportionate increase in quantity supplied. When the elasticity of supply is less than unity, supply is inelastic and a higher price produces a less than proportionate increase in quantity supplied. When the ratio equals unity, supply is unit elastic and a higher price produces a propor- tionate increase in quantity supplied. • Most economic issues involve the workings of individual markets. • In the supply–demand model, we analyze the behavior of buyers by using the demand curve. • The demand curve shows how much people will pur- chase at different prices when other factors that affect purchases are held constant. The demand curve slopes downward, reflecting the law of demand. • Analysis of the seller side of the market relies on the supply curve, which shows the amount that firms will offer for sale at different prices, other factors being constant.
- Berkeley Hill(Author)
- 2013(Publication Date)
- Pergamon(Publisher)
It is defined by the following formula: Price elasticity of supply PERCENTAGE CHANGE IN QUANTITY SUPPLIED : OF COMMODITY A PERCENTAGE CHANGE IN PRICE OF A Demand and Supply 65 The word price is often dropped from the title. Usually the Elasticity of Supply is a positive figure. (It is only negative when the quantity supplied increases when prices fall.) For some commodities the quantity supplied is extremely responsive to price changes. Such supply is called Elastic and the E$p would be high. Where changes in supply occur without any change in price being necessary, supply is called infinitely elastic. An example might be an ice cream seller at the seaside; within a given range of quantities he is FIG. 3.14 The Effects on Price and Quantity Demanded and Supplied when a Shift in the Demand Curve Occurs (i) Infinitely elastic supply (ii) (Intermediate case) Quantity demanded and supplied of good A Quantity demanded and supplied of good A (in) Completely inelastic supply Quantity demanded and supplied of good A 66 An Introduction to Economics for Students of Agriculture willing to sell as much or as little as buyers want without changing his prices. At the other extreme, the quantity supplied is very unresponsive, possibly totally unresponsive, to price changes. An example is Cup Final tickets; once the arena has been sold out, however high the black market price rises, no more seating spaces can be supplied. In such a situation, supply is completely inelastic. Fig. 3.14 shows what happens when a change in demand, caused perhaps by an increase in consumers' incomes, meets supply situations of infinitely elastic supply (i), completely inelastic supply (iii) and an intermediate case (ii). With an infinitely elastic supply no price increase occurs and the quantity which changes hands increases; with completely inelastic supply the price increases but no increase in quantity results, and in the intermediate case both the price and the quantity sold increases.
eBook - PDFEconomics
A Contemporary Introduction
- William A. McEachern(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
5-3 Price elasticity of supply Prices signal both sides of the market about the relative scarcity of products. Higher prices discourage consumption but encourage production. Lower prices encourage con- sumption but discourage production. The price elasticity of demand measures how Product Short Run Long Run Cigarettes (among adults) — 0.4 Electricity (residential) 0.1 1.9 Air travel 0.1 2.4 Beer 0.3 — Medical care and hospitalization 0.3 0.9 Gasoline 0.4 1.5 Milk 0.4 — Fish (cod) 0.5 — Wine 0.7 1.2 Movies 0.9 3.7 Natural gas (residential) 1.4 2.1 Automobiles 1.9 2.2 Chevrolets — 4.0 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 5 Elasticity of Demand and Supply 103 responsive consumers are to a price change. Likewise, the Price elasticity of supply mea- sures how responsive producers are to a price change. Supply elasticity is calculated in the same way as demand elasticity. In simplest terms, the Price elasticity of supply equals the percentage change in quantity supplied divided by the percentage change in price. Because a higher price usually increases quantity supplied, the percentage change in price and the percentage change in quantity supplied move in the same direction, so the Price elasticity of supply is usually a positive number. Exhibit 7 depicts a typical upward-sloping supply curve. As you can see, if price increases from p to p9, quantity supplied increases from q to q9. Price and quantity supplied move in the same direction. Let’s look at the elasticity formula for the supply curve.
eBook - PDFMicroeconomics
A Contemporary Introduction
- William A. McEachern(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
5-3 Price elasticity of supply Prices signal both sides of the market about the relative scarcity of products. Higher prices discourage consumption but encourage production. Lower prices encourage con-sumption but discourage production. The price elasticity of demand measures how Product Short Run Long Run Cigarettes (among adults) — 0.4 Electricity (residential) 0.1 1.9 Air travel 0.1 2.4 Beer 0.3 — Medical care and hospitalization 0.3 0.9 Gasoline 0.4 1.5 Milk 0.4 — Fish (cod) 0.5 — Wine 0.7 1.2 Movies 0.9 3.7 Natural gas (residential) 1.4 2.1 Automobiles 1.9 2.2 Chevrolets — 4.0 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 5 Elasticity of Demand and Supply 103 responsive consumers are to a price change. Likewise, the Price elasticity of supply mea-sures how responsive producers are to a price change. Supply elasticity is calculated in the same way as demand elasticity. In simplest terms, the Price elasticity of supply equals the percentage change in quantity supplied divided by the percentage change in price. Because a higher price usually increases quantity supplied, the percentage change in price and the percentage change in quantity supplied move in the same direction, so the Price elasticity of supply is usually a positive number. Exhibit 7 depicts a typical upward-sloping supply curve. As you can see, if price increases from p to p 9 , quantity supplied increases from q to q 9 . Price and quantity supplied move in the same direction. Let’s look at the elasticity formula for the supply curve.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2015(Publication Date)
- Openstax(Publisher)
percentage change in the quantity demanded or supplied percentage change in the quantity demanded of a good or service divided the percentage change in price percentage change in the quantity supplied divided by the percentage change in price manner in which the tax burden is divided between buyers and sellers when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied the percentage change in hours worked divided by the percentage change in wages the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance KEY CONCEPTS AND SUMMARY 122 Chapter 5 | Elasticity This OpenStax book is available for free at http://cnx.org/content/col11858/1.4 5.1 Price Elasticity of Demand and Price elasticity of supply Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded (or supplied) divided by the percentage change in price. Elasticity can be described as elastic (or very responsive), unit elastic, or inelastic (not very responsive). Elastic demand or supply curves indicate that quantity demanded or supplied respond to price changes in a greater than proportional manner. An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied. A unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied. 5.2 Polar Cases of Elasticity and Constant Elasticity Infinite or perfect elasticity refers to the extreme case where either the quantity demanded or supplied changes by an infinite amount in response to any change in price at all.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
percentage change in the quantity demanded or supplied percentage change in the quantity demanded of a good or service divided the percentage change in price percentage change in the quantity supplied divided by the percentage change in price manner in which the tax burden is divided between buyers and sellers when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied the percentage change in hours worked divided by the percentage change in wages the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance KEY CONCEPTS AND SUMMARY 122 Chapter 5 | Elasticity This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 5.1 Price Elasticity of Demand and Price elasticity of supply Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded (or supplied) divided by the percentage change in price. Elasticity can be described as elastic (or very responsive), unit elastic, or inelastic (not very responsive). Elastic demand or supply curves indicate that quantity demanded or supplied respond to price changes in a greater than proportional manner. An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied. A unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied. 5.2 Polar Cases of Elasticity and Constant Elasticity Infinite or perfect elasticity refers to the extreme case where either the quantity demanded or supplied changes by an infinite amount in response to any change in price at all.
eBook - PDFEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
In the case of own-price elasticity of demand, that measure is Equation 1-23: 10 E d P x ¼ %ΔQ d x %ΔP x ð1-23Þ 10 The reader will also encounter the Greek letter epsilon (ε) being used in the notation for elasticities. Chapter 1 Demand and Supply Analysis: Introduction 41 Notice that this measure is independent of the units in which quantity and price are measured. If, for example, when price rises by 10 percent, quantity demanded falls by 8 percent, then elasticity of demand is simply 0.8. It does not matter whether we are mea- suring quantity in gallons per week or liters per day, and it does not matter whether we measure price in dollars per gallon or euros per liter; 10 percent is 10 percent, and 8 percent is 8 percent. So the ratio of the first to the second is still 0.8. We can expand Equation 1-23 algebraically by noting that the percentage change in any variable x is simply the change in x (denoted “Δx”) divided by the level of x. So, we can rewrite Equation 1-23, using a couple of simple steps, as Equation 1-24: E d P x ¼ %ΔQ d x %ΔP x ¼ ΔQ d x Q d x ΔP x P x ¼ ΔQ d x ΔP x P x Q d x ð1-24Þ To get a better idea of price elasticity, it might be helpful to use our hypothetical market demand function: Q d x ¼ 11,200 400P x . For linear demand functions, the first term in the last line of Equation 1-24 is simply the slope coefficient on P x in the demand function, or 400. (Technically, this term is the first derivative of Q d x with respect to P x , dQ d x =dP x , which is the slope coefficient for a linear demand function.) So, the elasticity of demand in this case is 400 multiplied by the ratio of price to quantity. Clearly in this case, we need to choose a price at which to calculate the elasticity coefficient. Let’s choose the original equilibrium price of $3. Now, we need to find the quantity associated with that particular price by inserting 3 into the demand function and finding Q ¼ 10,000.
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