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Topic 2.4-

Price Elasticity of Supply

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Price Elasticity of Supply (SED)

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Measures how sensitive quantity supplied is to a change in price

Do you think that the SUPPLY of fidget spinners is inelastic or elastic? Why?

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The supply of fidget spinner is elastic. Manufactures were able to make them quickly so the quantity supplied was very sensitive to a change in price.

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Price Elasticity of Supply

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Price Elasticity of Supply-

  • Elasticity of supply shows how sensitive producers are to a change in price.

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Elasticity of supply is based on time limitations.

Producers need time to produce more.

Inelastic = Insensitive to a change in price

  • Most goods have Inelastic supply in the short-run

Elastic = Sensitive to a change in price

  • Most goods have elastic supply in the long-run

Perfectly Inelastic Supply= QS doesn’t change Set quantity supplied (Vertical line)

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Inelastic Supply

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General Characteristics of Inelastic Supply:

  1. Hard to produce
  2. High barriers to entry (few firms)
  3. High cost or specialized inputs
  4. Hard to switch from producing alternative goods
  5. Elasticity coefficient less than 1

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General Characteristics of Elastic Supply:

  1. Easier to produce
  2. Low barriers to entry (many firms)
  3. Low cost or generic inputs
  4. Easy to switch from producing alternative goods
  5. Elasticity coefficient greater than 1

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Elastic Supply

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D

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Elasticity Visualized

S

S

S

S

S

Perfectly

Inelastic

​

Elasticity

Coefficient 0

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Relatively

Inelastic

​

Elasticity

Coefficient <1

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Unit

Elastic

​

Elasticity

Coefficient1

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Relatively

Elastic

​

Elasticity

Coefficient >1

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Perfectly

Elastic

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Elasticity

Coefficient ∞

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Q

Price

Supply

A

10 15 20 25 30 35 40 45 50

$50

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$40

​

$30

​

$20

​

$10

​

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B

Calculate the SED from A to B and identify if the supply is relatively elastic or relatively inelastic (show your work)

+1.5 = .75 = (35-20)/20

.5 (30-20)/20

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Which of the following must be true for original Michelangelo sculptures?

  1. The demand is relatively elastic
  2. The supply is perfectly elastic
  3. The demand is perfectly inelastic
  4. The supply is perfectly inelastic
  5. The demand is perfectly elastic

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Practice Questions