03.3 Elasticity- Price Elasticity of Supply

Price of Elasticity of Supply

• measures how much Qs responds to a change in P.

• Measures sellers’ price-sensitivity

Price Elasticity of Supply Formula

Things to Consider on the Curves of Price Elasticity

• the slope of the supply curve is closely related to price elasticity of supply

• rule of thumb:

  the flatter the curve, the bigger the elasticity

  the steeper the curve, the smaller the elasticity

Different Classifications of Price Elasticity of Supply

• Perfectly Inelastic (one extreme)

• Inelastic

• Elastic

• Perfectly Elastic

Perfectly Inelastic (one extreme)

S Curve: Vertical

Seller’s Price Sensitivity: None

Elasticity: 0

Inelastic

S Curve: Relatively Steep

Sellers’ Price Sensitivity: Relatively Low

Elasticity: <1

Elastic

S Curve: Relatively Flat

Sellers’ Price Sensitivity: Relatively High

Elasticity: >1

Perfectly Elastic (the other extreme)

S Curve: Horizontal

Sellers’ Price Sensitivity: Extreme

Elasticity: Infinity

Determinants of Price Elasticity in Supply

• The ability of the firm to alter production levels

• The time period under consideration

The ability of the firm to alter production levels

This depends on:

• the availability of input- the factors of production

• the state of technology

• the level of excess capacity

The time period under consideration

There are three different periods of supply:

• short-run supply

• momentary supply

• long-run supply

3 Different Periods of Supply