Part

Tutorial 2
Elasticity of Supply
• 1- Price Elasticity of Supply:
• The price elasticity of supply (Price elasticity) is the
percentage change in quantity supplied divided by
the percentage change in price.
• Economists define the price elasticity of supply of
responsiveness of the quantity supplied of a good to
its market price.

• PES = Percentage change in QS

• Percentage change in P
• The price elasticity of supply has a positive sign because of the positive
relationship between quantity supplied and unit price.
• Elastic Supply
• The percentage change in QS (% QS) will be greater than the
percentage change in unit price (% P), thus PES will be greater than
one (PES ˃ 1).
P

50 PES = 66.6/28.5
= 2.3
40 Therefore, PES is
C bigger Than one.
(% P)= 28.5 %
“Elastic Supply”
30
B
Notice that:
20 A
(% QS)= 66.6 % Elastic Supply curve
tends to be more
10
Horizontal .

0 1000 2000 3000 4000 5000 QS

• Inelastic Supply
• The percentage change in QS (% QS) will be smaller than the
percentage change in unit price (% P), thus PES will be less than one
(PES ˂ 1).

50 PES = 40/50
C = 0.8
40
(% P)= 50 % Therefore, PES is
smaller
Than one.
30
B “Inelastic Supply”
20
Notice that:
Elastic Supply
10
A (% QS)= 40 %
curve tends to be
more vertical .
0 1000 2000 3000 4000 5000 QS
 a)Perfectly Inelastic Supply
a) PES = 0 P ES = 0
b) Unit-Elastic Supply
“Perfectly ES = 1
Inelastic
Supply”
Notice that:
Perfectly
Inelastic Supply
curve is a
vertical line.
b) Perfect Elastic Supply
b) PES = 1 P’ ES = ∞
“Unit Elastic
Supply”

c) PES = ∞
“Perfectly
Elastic Supply”
Notice that:
0 Q’ Q
Perfectly Elastic
supply curve is
a horizontal
line.
• Determinants of Price Elasticity of Supply
• The ease of factors of production mobility
• The more ease and in-expensive the transfer of factors of production
between different production alternatives, the more the elastic
supply will be, this enables for the substitution of one product for
another and vice versa.
• Degree of difficulty of the production process
• The more sophisticated the production process is, the more In-
elastic supply will be and vice versa.
• The ability to be stocked (Storage ability)
• Products which are able to be stocked for long time periods have a
relatively higher price elasticity of supply.
• The duration of the production process
• The longer the production process is, the more In-elastic supply
will be and vice versa.
• The length of time to respond
• The longer the time producers get to make adjustments for changing
the level of output in response to the change in the price, the
greater the response of output, that is, the greater the elasticity of
supply and vice versa.
• The availability of inputs for expanding output
• If inputs used in the production of a commodity are easily available at
going market prices, then output of the commodity can be easily
expanded with little rise in the unit price and vice versa.
Choose the correct answer:

1. The elasticity of supply measures the sensitivity of

A) Supply to changes in costs.
B) Quantity supplied to quantity demanded.
C) Quantity supplied to a change in price.
D) Price to changes in supply.
Answer: C

2. Supply is elastic if
A) a 1 percent change in price causes a larger percentage
change in quantity supplied.
B) a 1 percent change in price causes a smaller percentage
change in quantity supplied.
C) the slope of the supply curve is positive.
D) the good in question is a normal good.
Answer: A
3. If a percent decrease in the price of a pound of
squash results in a larger percentage decrease in the
quantity supplied,
A) demand is elastic.
B) demand in inelastic.
C) supply is elastic.
D) supply is inelastic.
Answer: C

4. If the elasticity of supply of a good is zero, then its

A) Supply curve is vertical.
B) Supply curve is horizontal.
C) Demand curve must be vertical.
D) Supply curve is positively sloped.
Answer: A
5. The elasticity of supply is
A) positive and more elastic in the long run.
B) positive and more elastic in the short run.
C) negative and more elastic in the long run.
D) negative and more elastic in the short run.
Answer: A

6. If a good is produced using inputs for which there are

no substitutes, the good’s
A) elasticity of supply is likely to be small.
B) elasticity of supply is likely to be large.
C) elasticity of demand will be small.
D) elasticity of demand will be large.
Answer: A
7. Which of the following leads the good to have a
high elasticity of supply?
I. the good that must be produced using unique resources.
II. The good that is produced using commonly available
resources.
A) I only.
B) II only.
C) I and II
D) Neither I nor II
Answer: B
End of Tutorial
2
Part 3