1. AS Economics
Price Elasticity of Supply

2. Today’s objectives
• Understand price
elasticity of
supply
• Be able to use
price elasticity of
supply

3. Price elasticity of supply
• What do you
think it is ?
• How do you
calculate it?
• Write an
example (with
numbers)

4. Price elasticity of supply
• What do
entrepreneurs
want to do when
prices increase?
• Why?

5. Price Elasticity of Supply
• When price of Muppets characters increases
by 20% there is a 10% increase in supply
% change in quantity supplied
% change in price
=0.5
=
10%
20%

6. Price elasticity of supply
• The answer shows the extent to
which supply is elastic
• Answers below 1 are said to be
inelastic
• Answers above 1 are said to be more
price elastic

7. When demand for a good increases, equilibrium price
stays the same. What is the elasticity of supply?
Sketch this situation in the supply and demand diagram
on the left (below)
Price
Price
D1
D2
Quantity
Quantity

8. When demand for a good increases, equilibrium price
stays the same. What is the elasticity of supply?
Sketch this situation in the supply and demand diagram
on the left (below)
Price
Price
P1
S1
D1
D2
Quantity
Quantity

9. When there is an increase in demand for a product, the
rise in equilibrium price is large but the expansion in
quantity produced is small. What is the elasticity of
supply? Sketch the situation in the supply and demand
diagram on the right (below)
Price
Price
P1
S1
D1
D2
Quantity
D1
D2
Quantity

10. When there is an increase in demand for a product, the
rise in equilibrium price is large but the expansion in
quantity produced is small. What is the elasticity of
supply? Sketch the situation in the supply and demand
diagram on the right (below)
Price
Price
P1
S1
S1
D1
D2
Quantity
D1
D2
Quantity

11. When there is an increase in demand for a product, the
rise in equilibrium price is large but the expansion in
quantity produced is small. What is the elasticity of
supply? Sketch the situation in the supply and demand
diagram on the right (below)
Price
Price
P1
S1
S1
P1
D1
D2
Quantity
D1
Q1
D2
Quantity

12. When there is an increase in demand for a product, the
rise in equilibrium price is large but the expansion in
quantity produced is small. What is the elasticity of
supply? Sketch the situation in the supply and demand
diagram on the right (below)
Price
Price
S1
P2
P1
S1
P1
D1
D2
Quantity
D1
Q1
D2
Q2 Quantity

13. Price elasticity of supply
• Price elasticity of supply is often used
to explain why prices rise or fall quite
dramatically when there are changes
in demand
• For example draw a supply curve in
July for:

14. Price elasticity of supply
• What about for:
• If there is no spare stock and all oil
wells are producing at full capacity?

15. Price elasticity of supply
• On the other hand what about for:
• If there is spare stock and factories
have spare capacity?

16. What might affect a industry’s price elasticity of
supply?
Spare
capacity
Stock levels
Supply of
raw
materials
Ease of
switching
between
production
of different
goods
Number of
firms in the
market
Short
production
times

17. What examples can you think of
for perfectly inelastic supply
curves?
Price
Quantity

18. Price elasticity of supply
• Price elasticity of supply is often used
to explain why prices rise or fall quite
dramatically when there are changes
in demand
• For example draw and explain a
supply curve in July for:
Now draw a supply curve
for next July
What is the difference?
Why?

19. Price elasticity of supply
• Price elasticity of supply is often used to
explain why prices rise or fall quite
dramatically when there are changes in
demand
• For example draw a supply curve in for:
You have just moved to
the desert. Draw a new
supply curve for water.
What is the difference?
Why?

20. Today’s objectives
• Understand price
elasticity of
supply
• Be able to use
price elasticity of
supply