GROUP D

•NAME ROLL NO

•ROSHANI CHAUDHARY 11
•CHIRAG DHIRAWANI 14
•NIRAV DOSHI 16
•SHEETAL KALE 25
•ROHIT MEHTA 35
•GUNJAN PITTI 43
•MONICA SARDA 51
•REENA TRIVEDI 57
•INCIA JOBATWALA 61
•SAGAR KESHRI 62
 LAYOUT OF PRESENTATION

•What is elasticity?

•Price elasticity of supply

•Types of elasticity

•Factors or determinants

•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 60p to 40p causing
supply to contract from 120 to 100.

 The price of a product rises from €50 to €60 causing

supply to extend from 100 to 200.
 The price of a product falls from 60p to 40p causing supply to
contract from 120 to 100.
PeS= 16%/ 33%= 0.48

 The price of a product rises from €50 to €60 causing supply to

extend from 100 to 200.
PeS= 100% / 20 % = 5
 Types of price elasticity of supply
Inelastic supply

The diagram to your left indicates a

good which has an inelastic supply
curve. It is possible, for example, to grow
tomatoes all year round. To grow
tomatoes in winter requires glass
houses, heating, and supplementary
lighting in the right wave lengths, to
compensate for the shorter days and
longer nights. However, it can be done;
but at a considerable cost.
The price of tomatoes would have to rise by a considerable amount (to P1 from Po) to justify
the small increase in quantity supplied. (Q1 less Qo).
Elastic supply

The diagram to your left indicates a good

which has an elastic supply curve. An
icecream manufacturer can rapidly
increase production, if hot weather is
forecast. Sales are likely to increase by a
large amount.
The demand for icecreams would have to
rise by only a small amount
(to P1from Po) to justify the large increase
in quantity supplied. (Q1 less Qo).
Perfectly inelastic Perfectly elastic
supply supply
 % change in quantity supplied
ES =
% change in price

ES > 1 price-elastic supply

ES = 1 unit-elastic supply

ES < 1 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.
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
How much spare capacity a firm has - if there is plenty of spare
capacity, the firm should be able to increase output quite quickly
without a rise in costs and therefore supply will be elastic

2) STOCKS
The level of stocks or inventories - if stocks of raw materials,
components and finished products are high then the firm is able to
respond to a change in demand quickly by supplying these stocks
onto the market - supply will be elastic.
3) EASE OF FACTOR SUBSTITUTION
Consider the sudden and dramatic increase in demand for petrol canisters
during the recent fuel shortage. Could manufacturers of cool-boxes or producers
of other types of canister have switched their production processes quickly and
easily to meet the high demand for fuel containers?
If capital and labour resources are occupationally mobile then the elasticity of
supply for a product is likely to be higher than if capital equipment and labour
cannot easily be switched and the production process is fairly inflexible in
response to changes in the pattern of demand for goods and services.

4) TIME PERIOD
Supply is likely to be more elastic, the longer the time period a firm has to
adjust its production. In the short run, the firm may not be able to change its
factor inputs. In some agricultural industries the supply is fixed and determined
by planting decisions made months before, and climatic conditions, which affect
the production, yield.
Economists sometimes refer to the momentary time period - a time period that
is short enough for supply to be fixed i.e. supply cannot respond at all to a
change in demand.
 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 – For many agricultural products
businesses with plentiful stocks there are time lags in the
can supply quickly and easily onto production process which means
the market 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 Britain’s roads. Their
mine at Winsford in Cheshire is the UK’s 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-a-week 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