GROUP D

NAME
ROSHANI CHAUDHARY CHIRAG DHIRAWANI NIRAV DOSHI SHEETAL KALE ROHIT MEHTA GUNJAN PITTI MONICA SARDA REENA TRIVEDI INCIA JOBATWALA SAGAR KESHRI

ROLL NO
11 14 16 25 35 43 51 57 61 62

LAYOUT OF PRESENTATION
What is elasticity? Price elasticity of supply Factors or determinants Types of elasticity Examples Case study

WHAT IS ELASTICITY ?
Elasticity is a measure of responsiveness of one variable to another Elasticity measures the proportional(percentage) change in one variable relative to proportional change in another variable.

PRICE ELASTICITY OF SUPPLY

It can be defined as the degree of responsiveness of supply to a given change in price. Since the higher price usually results in an increased quantity supplied, the percent change in price and the percent change in quantity supplied move in the same direction the price elasticity of supply is usually a positive number .

The formula to find out the elasticity of supply is

Percentage change in quantity supplied divided by percentage change in price.

The price of a product falls from Rs60 to Rs40 causing supply to contract from 120 to 100.

The price of a product rises from Rs50 to Rs60 causing supply to extend from 100 to 200.

The price of a product falls from 60 to Rs40 causing supply to contract from 120 to 100. PeS= 16%/ 33%= 0.48

The price of a product rises from Rs50 to Rs60 causing supply to extend from 100 to 200. PeS= 100%/ 20% = 5

Determinants or factors that affect price elasticity of supply .

The value of price elasticity of supply is positive, because an increase in price is likely to increase the quantity supplied to the market and vice versa.
1) SPARE CAPACITY

2) STOCKS

3) EASE OF FACTOR SUBSTITUTION

4) TIME PERIOD

Types of price elasticity of supply

Inelastic supply
Elastic supply

Perfectly inelastic supply

Perfectly elastic supply

ES =
ES > 1

% change in quantity supplied % change in price

price-elastic supply

ES = 1
ES < 1

unit-elastic supply
price-inelastic supply

Es = 0

perfectly inelastic supply

Es = Infinity perfectly elastic supply

Cross elasticity of supply

The cross (price) elasticity of supply measures change in quantity supplied of one commodity when the price of another commodity changes .

Cross elasticity of supply can be expressed as:

Esc = proportionate change in quantity supplied of one product proportionate change in price of another product

Cross elasticity is always negative indicating that a rise in the price of one good will lead to a fall in the quantity supplied of alternative good.

Example of cross elasticity of supply

Wheat

Paddy

To understand cross elasticity of supply we are taking example of agriculture commodities wheat and paddy . Since land is a scarce factor farmers have to be careful about its use .If a farmer grows wheat on a piece of land ,but if price of paddy goes up then land will be diverted from wheat production causing fall in quantity of wheat supplied.

Examples

An empty restaurant plenty of When telecommunications networks spare capacity to meet any rise in get congested at peak times, the demand! elasticity of supply to meet rising demand may be low

Stocks in a warehouse businesses For many agricultural products with plentiful stocks can supply there are time lags in the quickly and easily onto the market production process which means when demand changes that elasticity of supply is very low in the immediate or momentary time period

Case study
Salt Union and Elasticity of Supply

The Big Freeze has caused a huge rise in the demand for grit to treat road surfaces. Most of this demand comes from local authorities and inevitably the supply-side of the market has found it difficult to match production with demand.

The Salt Union is the dominant supplier of rock salt to use on Britains roads. Their mine at Winsford in Cheshire is the UKs biggest rock salt mine and is capable of extracting 30,000 tonnes per week, it has nearly 140 miles of roads some 200 metres below ground. But their plant has been working at full capacity since mid December and the Salt Union has admitted that - despite working 24 hours-a-day seven days-aweek at a maximum output of 30,000 tonnes a week, it is not possible to sustain the unprecedented level of repeat orders coming in. The potash mine at Boulby in Cleveland is the other big source of rock salt in the UK, it too is working at capacity and has opted to divert planned exports to local authorities because of unexpected depletion of stocks. The third main supplier of rock salt comes from Northern Ireland - the Irish Salt Mining and Exploration Company
Stocks of rock salt have dropped sharply and the main supplier is working at capacity - two factors that have made the short run supply of rock salt highly inelastic in response to strong demand. The free market price of salt ought to rise in such circumstances and there is evidence that local councils who have flexible salt supply contracts with the Salt Union are seeing a rise in the cost of salt per tonne. This BBC magazine article tries to unearth some of the detail on salt contract prices