ELASTICITY OF

SUPPLY
PRESENTED BY: LANCE HEART RAMOS
JEFFERSON ORPHIANO
 CONTENT:

• ELASTICITY OF SUPPLY DEFINITION

• TYPES OF SUPPLY ELASTICITY
• DETERMINANTS OF SUPPLY ELASTICITY
• MEASURING PRICE ELASTICITY OF SUPPLY
 ELASTICITY OF SUPPLY DEFINITION

• “THE SUPPLY OF A COMMODITY IS SAID TO BE ELASTIC

WHEN AS A RESULT OF A CHANGE IN PRICE, THE SUPPLY
CHANGES SUFFICIENTLY AS A QUICK RESPONSE.
CONTRARILY, IF THERE IS NO CHANGE OR NEGLIGIBLE
CHANGE IN SUPPLY OR SUPPLY PAYS NO RESPONSE, IT IS
ELASTIC.”

PROF. THOMAS
 ELASTICITY OF SUPPLY

• ACCORDING TO LIPSEY “ ELASTICITY OF SUPPLY IS THE RATIO OF PERCENTAGE

CHANGE IN QUANTITY SUPPLIED OVER THE PERCENTAGE CHANGE IN PRICE”
• IN THE WORDS OF PROF. BILAS, “ ELASTICITY OF SUPPLY IS DEFINED AS THE
PERCENTAGE CHANGE IN QUANTITY SUPPLIED DIVIDED BY PERCENTAGE CHANGE
IN PRICE”.
• ELASTICITY OF SUPPLY IS A MEASURE OF THE DEGREE OF CHANGE IN THE
QUANTITY SUPPLIED OF A PRODUCT IN RESPONSE TO A CHANGE IN ITS PRICE.
 ELASTICITY OF SUPPLY

• PRICE ELASTICITY OF SUPPLY - MAY BE DEFINED

AS THE DEGREE OF RESPONSIVENESS OF SUPPLY TO
LITTLE CHANGES IN THE PRICE OF A COMMODITY.
• ELASTICITY OF SUPPLY MEASURES THE EXTENT TO
WHICH THE QUANTITY OF A COMMODITY SUPPLIED
BY A PRODUCER CHANGES AS A RESULT OF A LITTLE
CHANGE IN THE PRICE OF THE COMMODITY.
 WHAT DOES PRICE ELASTICITY OF SUPPLY
MEAN?
• IT MEANS THAT WHEN THE PRICE OF A PRODUCT OR SERVICE INCREASES OR
DECREASE SUPPLIERS OF THE GOOD OR SERVICE ARE EITHER MORE WILLING OR
LESS WILLING TO PRODUCE IT. THIS RELATIONSHIP DEPENDS ON SEVERAL
FACTORS INCLUDING THE:
• AVAILABILITY OF RAW MATERIALS
• COMPLEXITY OF THE PRODUCTION CYCLE
• MOBILITY OF FACTORS
• RESPONSIVENESS OF PRODUCERS
• CAPACITY FOR EXCESS PRODUCTION
• ABILITY TO RUN PRODUCTION AT FULL CAPACITY
 TYPES OF
ELASTICITY OF
SUPPLY
TYPES OF ELASTICITY IN SUPPLY
 ELASTIC SUPPLY (𝐸𝑠 >1)

• SUPPLY IS SAID TO BE ELASTIC IF A

SMALL CHANGE IN PRICE LEADS TO
A GREATER CHANGE IN THE
QUANTITY OF GOODS SUPPLIED. IN
THIS CASE, ELASTICITY IS GREATER
THAN ONE OR UNITY, I.E E =>1<
INFINITY. THIS TYPE OF ELASTICITY
IS ALSO KNOWN AS FAIRLY
ELASTIC.
 IN-ELASTIC SUPPLY (𝐸𝑠 <1)

• SUPPLY IS SAID TO BE INELASTIC

IF A LARGE CHANGE IN PRICE
LEADS TO A SMALLER OR A
SLIGHT CHANGE IN QUANTITY
OF GOODS SUPPLIED. IN THIS
CASE, ELASTICITY IS LESS THAN
ONE BUT GREATER THAN ZERO.
 UNITARY ELASTIC

• SUPPLY IS SAID TO BE UNITARY

WHEN A CHANGE IN PRICE LEADS
TO AN EQUAL CHANGE IN THE
QUANTITY OF GOODS SUPPLIED. IN
OTHER WORDS, A 5% CHANGE IN
PRICE WILL LEAD TO A 5% CHANGE
IN SUPPLY. IN THIS SITUATION,
ELASTICITY IS EQUAL TO ONE, I.E E
= 1.
 PERFECTLY ELASTIC (𝐸𝑠 = ∞)
• SUPPLY IS SAID TO BE PERFECTLY
ELASTIC WHEN A CHANGE IN PRICE
BRINGS ABOUT AN INFINITE EFFECT ON
THE QUANTITY OF GOODS SUPPLIED. IN
OTHER WORDS, A SLIGHT INCREASE IN
PRICE CAN MAKE PRODUCERS TO
INCREASE THE SUPPLY OF THE
COMMODITY WHILE A SLIGHT
DECREASE IN PRICE WILL MAKE
PRODUCERS TO STOP THE SUPPLY OF
THE COMMODITY. IN THIS CASE,
ELASTICITY IS EQUAL TO INFINITY.
 PERFECTLY INELASTIC (𝐸𝑠=0)

• SUPPLY IS SAID TO BE
PERFECTLY INELASTIC IF A
CHANGE IN PRICE HAS NO
EFFECT WHATSOEVER ON THE
QUANTITY OF GOODS
SUPPLIED. IN THIS SITUATION,
ELASTICITY IS EQUAL TO ZERO,
I.E E = 0.
 DETERMINANTS OF
SUPPLY ELASTICITY
 Production Flexibility of number of
Time Period
Possibilities Seller Producer

State of Storage Producer’s Nature of Natural

Technology Possibilities expectation commodity Factors
 PRODUCTION POSSIBILITIES

• IF A PRODUCER HAS LIMITED RESOURCES, SUCH AS

LABOR, RAW MATERIALS, OR MACHINERY, THEY MAY NOT
BE ABLE TO INCREASE THEIR PRODUCTION EASILY IN
RESPONSE TO CHANGES IN DEMAND. THIS LIMITED
PRODUCTION CAPACITY CAN MAKE THE SUPPLY LESS
ELASTIC.
 TECHNOLOGY

• THE LEVEL OF TECHNOLOGICAL ADVANCEMENT

AND PRODUCTION EFFICIENCY CAN AFFECT SUPPLY
ELASTICITY. IF A PRODUCER HAS OUTDATED
TECHNOLOGY OR INEFFICIENT PRODUCTION
PROCESSES, THEY MAY STRUGGLE TO INCREASE
SUPPLY QUICKLY, LEADING TO LOWER ELASTICITY.
 TIME HORIZON

• ELASTICITY OF SUPPLY CAN VARY OVER DIFFERENT TIME

HORIZONS. IN THE SHORT RUN, SUPPLY MAY BE
RELATIVELY INELASTIC BECAUSE IT'S DIFFICULT TO
MAKE SIGNIFICANT CHANGES TO PRODUCTION.
HOWEVER, IN THE LONG RUN, PRODUCERS MAY HAVE
MORE FLEXIBILITY TO ADJUST THEIR PRODUCTION
METHODS AND INCREASE SUPPLY, MAKING IT MORE
ELASTIC.
 STORAGE POSSIBILITY:

• IF A COMMODITY CAN BE EASILY STORED, ITS

SUPPLY TENDS TO BE MORE ELASTIC. FOR
EXAMPLE, NON-PERISHABLE GOODS LIKE
ELECTRONICS HAVE A MORE ELASTIC SUPPLY
SINCE THEY CAN BE STORED WITHOUT
SIGNIFICANT COST.
 NATURE OF COMMODITY

• THE TYPE OF COMMODITY ALSO PLAYS A ROLE.

COMMODITIES LIKE AGRICULTURAL PRODUCTS, WHICH
ARE SUBJECT TO SEASONAL VARIATIONS, MAY HAVE LESS
ELASTIC SUPPLIES DUE TO THEIR PERISHABLE NATURE.
 FLEXIBILITY OF THE SELLER

• SUPPLIERS' ABILITY TO ADJUST PRODUCTION IN

RESPONSE TO PRICE CHANGES AFFECTS SUPPLY
ELASTICITY. IF SELLERS CAN QUICKLY ADAPT TO
CHANGING MARKET CONDITIONS, THE SUPPLY IS MORE
ELASTIC. FOR EXAMPLE, SOME INDUSTRIES CAN RAMP UP
PRODUCTION IN A SHORT TIME.
 NUMBER OF PRODUCERS
• THE NUMBER OF PRODUCERS IN A MARKET CAN
INFLUENCE SUPPLY ELASTICITY. IN A HIGHLY
COMPETITIVE MARKET WITH MANY PRODUCERS,
SUPPLY TENDS TO BE MORE ELASTIC BECAUSE
INDIVIDUAL PRODUCERS CAN ADJUST OUTPUT
MORE EASILY.
 NATURAL CALAMITY
•
NATURAL DISASTERS CAN DISRUPT THE SUPPLY
CHAIN, REDUCING THE ELASTICITY OF SUPPLY.
FOR EXAMPLE, A HURRICANE AFFECTING OIL
DRILLING FACILITIES CAN LEAD TO A SUDDEN
REDUCTION IN THE SUPPLY OF OIL.
 PRODUCER EXPECTATIONS:
• CAN INDEED INFLUENCE THE ELASTICITY OF SUPPLY. THE ELASTICITY OF SUPPLY MEASURES HOW
RESPONSIVE THE QUANTITY OF A GOOD SUPPLIED IS TO CHANGES IN ITS PRICE. PRODUCER
EXPECTATIONS PLAY A SIGNIFICANT ROLE IN DETERMINING THIS ELASTICITY BECAUSE THEY AFFECT
PRODUCERS' WILLINGNESS AND ABILITY TO ADJUST THEIR OUTPUT IN RESPONSE TO PRICE CHANGES.

• SHORT-TERM VS. LONG-TERM: IF PRODUCERS EXPECT THAT A CHANGE IN PRICE IS TEMPORARY, THEY
MAY BE LESS RESPONSIVE IN THE SHORT TERM BECAUSE IT CAN BE COSTLY OR DIFFICULT TO
QUICKLY ADJUST PRODUCTION LEVELS. IN THE LONG TERM, THEY MAY BE MORE ELASTIC IN THEIR
SUPPLY RESPONSE.

• TECHNOLOGY AND CAPACITY: PRODUCER EXPECTATIONS ABOUT FUTURE TECHNOLOGICAL

ADVANCEMENTS OR CHANGES IN CAPACITY CAN INFLUENCE THEIR ELASTICITY OF SUPPLY. IF THEY
ANTICIPATE INNOVATIONS THAT WILL MAKE PRODUCTION MORE EFFICIENT, THEY MAY BE MORE
WILLING TO INCREASE SUPPLY IN RESPONSE TO PRICE CHANGES.
 PRODUCER EXPECTATIONS:
• INPUT COSTS: EXPECTATIONS ABOUT FUTURE INPUT COSTS, SUCH AS THE PRICE OF RAW
MATERIALS, LABOR, OR ENERGY, CAN IMPACT SUPPLY ELASTICITY. IF PRODUCERS
ANTICIPATE RISING INPUT COSTS, THEY MAY BE LESS ELASTIC IN THEIR SUPPLY RESPONSE
AS THEY TRY TO PROTECT PROFIT MARGINS.

• MARKET STABILITY: EXPECTATIONS ABOUT MARKET STABILITY CAN ALSO AFFECT SUPPLY
ELASTICITY. IN VOLATILE MARKETS, PRODUCERS MAY BE LESS ELASTIC IN THEIR
RESPONSE TO PRICE CHANGES, WHILE IN STABLE MARKETS, THEY MAY BE MORE WILLING
TO ADJUST SUPPLY.

• GOVERNMENT POLICIES: PRODUCER EXPECTATIONS ABOUT FUTURE GOVERNMENT

POLICIES, SUCH AS TAXES OR REGULATIONS, CAN INFLUENCE THEIR SUPPLY ELASTICITY.
MEASUREMENT OF
ELASTICITY OF
SUPPLY
 MEASURING PRICE ELASTICITY OF SUPPLY
• ELASTICITY OF SUPPLY CAN BE MEASURED OR CALCULATED BY USING THE CO-
EFFICIENT OF PRICE ELASTICITY OF SUPPLY. THE FORMULA USED IN
CALCULATING THE ELASTICITY OF SUPPLY IS:
MEASURING PRICE ELASTICITY OF SUPPLY

• AS EXPLAINED EARLIER, WHEN:

(A) ELASTICITY IS EQUAL TO ONE, ELASTICITY OF SUPPLY
IS UNITY.
(B) ELASTICITY IS GREATER THAN ONE, ELASTICITY OF
SUPPLY IS ELASTIC.
(C) ELASTICITY IS LESS THAN ONE, ELASTICITY OF SUPPLY
IS INELASTIC.
 MIDPOINT METHOD

• TO CALCULATE ELASTICITY, INSTEAD OF

USING SIMPLE PERCENTAGE CHANGES
IN QUANTITY AND PRICE, ECONOMIST
SOMETIMES USE THE AVERAGE PRESENT
CHANGES IN BOTH QUANTITY AND
PRICE.
MIDPOINT FORMULA
 EXAMPLE

• JULIA IS A PINAPPLE SELLER. HE SELLS 40 KILOS PER

DAY AT A COST OF 70 PESOS PER KILO, BUT BECAUSE
CHRISTMAS IS NEAR, THE PRICE OF A KILO OF
PINEAPPLE, HAS INCREASED TO 100 PESOS PER KILO.
BECAUSE OF THIS, JULIA WAS ENCOURAGED TO
SELL 80 KILOS OF PINEAPPLE PER DAY.
 SOLVE

•Q1= 40 •P1= 70
•Q2= 80 •P2= 100
MEASURING PRICE ELASTICITY OF SUPPLY

SOLVE:

• AT #10.00 PER TUBER YAM, 24 TUBERS WE’RE SUPPLIED AND WHEN

THE PRICE INCREASED TO #12.00 PER TUBER, 30 TUBERS WERE
SUPPLIED.
(A) PRESENT THE ABOVE DATA IN A TABLE
(B) CALCULATE THE CO-EFFICIENT OF PRICE ELASTICITY OF SUPPLY
(C) WHAT TYPE OF ELASTICITY IS THIS AND HOW DID YOU ARRIVE
AT YOUR CONCLUSION
MEASURING PRICE ELASTICITY OF SUPPLY

SOLVE
• ASSUME THAT A BUSINESS FIRM SUPPLIED 10 PIECES OF
POTATOS AT THE PRICE OF 30. BUT THEN THE FIRM HAS
DECIDED TO INCREASE THE PRICE OF THE PRODUCT TO 60.
CONSEQUENTLY, THE SUPPLY OF THE PRODUCT IS INCREASED
TO 20 PIECES . CALCULATE THE ELASTICITY OF SUPPLY.
 REFERENCES
• HTTPS://WWW.MYACCOUNTINGCOURSE.COM/ACCOUNTING-DICTIONARY/PRICE-E
LASTICITY-OF-SUPPLY
• HTTPS://WWW.TOPPR.COM/GUIDES/BUSINESS-ECONOMICS/THEORY-OF-SUPPLY/EL
ASTICITY-OF-SUPPLY/
• HTTPS://WWW.ECONOMICSDISCUSSION.NET/ELASTICITY-OF-SUPPLY/ELASTICITY-
OF-SUPPLY-MEANING-TYPES-MEASUREMENT-AND-DETERMINANTS/17023#

• HTTPS://WWW.TOPPR.COM/GUIDES/BUSINESS-ECONOMICS/THEORY-OF-SUPPLY/M
EANING-AND-DETERMINANTS-OF-SUPPLY/
• HTTPS://ITSMYSCHOOLLIBRARY.COM/2020/08/08/CONCEPT-OF-ELASTICITY-OF-SUP
PLY-EQUILIBRIUM-AND-PRICE-LEGISLATION-ECONOMICS-LESSON-NOTE/
• HTTPS://SITES.GOOGLE.COM/SITE/ECONOMICSBASIC/ELASTICITY-OF-SUPPLY
THANK YOU FOR
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