So now let's discuss how elasticity relates to supply curves. So up to now, we've been doing a lot of demand curve stuff, but now let's talk about price elasticity of supply and guess what? Pretty much everything we do is going to be exactly the same. So lucky us, we're still going to be using our midpoint method here. Except now we're talking about supply, right? So the idea here is that instead of having quantity demanded in the numerator, so look at our formula, right? We've got quantity supplied in the numerator, but we still got price in the denominator, right? It's called price elasticity of supply, price in the denominator, right? So this is how does quantity supplied respond to a change in price, right? How much is that quantity supplied going to change? Is it going to change a lot when the price goes up? Is it only going to change a little when the price goes up? Right. So we've got our same shorthand that we've been using here. On the right, percentage change in quantity supplied over percentage change in price, right? So really our steps here are going to be the same as price elasticity of demand, except now we're just using quantity supplied. Again, just like with price elasticity of demand, our positives and negatives don't matter in this case because we're always going to get a positive number with quantity supplied, right? Remember the law of supply, when price goes up, quantity supplied goes up. So they're both positive, we're always going to get a positive number, signs don't matter. So let's go ahead and do an example here where we're going to calculate price elasticity of supply and it should seem very familiar to you, in the steps we're doing. So when the price of ice cream rises from $4 a tub to $6 a tub, the quantity supplied increases from $90,000 to $110,000. What is the price elasticity of supply of ice cream? So we are just going to use our 5 steps. There's no 6th step about positive or negative here because it's always positive. Easy peasy. Let's go ahead and do it. So I'm going to go ahead and circle my quantities here in blue like we've been doing and our prices in green, keep everything nice and separate. So I'm going to have a column here for quantity supplied right, not quantity demanded this time, and a column for price. So let's start with step 1, where we're going to subtract the 2 quantities, subtract the 2 prices. Do it the easy way, bigger minus smaller because signs don't matter. Alright. 20,000 is our difference. Price, 6 minus 4, 2. Alright. Step 2, we're going to add. Isn't this nice how similar all of our calculations have become? 110 plus 90 is going to give us 200,000 and price we've got 6 plus 4 equals 10. Step 3, we're just going to divide by 2. Our answer from step 2. Right? 200,000 divided by 2, 100,000, and 10 divided by 2 equals 5. Step 4 is where we're actually going to get our percentage changes in each. So for quantity supplied, it's step 1 divided by step 3. 20,000 divided by 100,000, that's going to give us 0.2, is our percentage change in quantity supplied in this case, right? And let's do the same thing with price. We've got step 1 was 2, step 3 was 5, 2/5 is 0.4. So a 40% change in price and a 20% change in quantity supplied. Step 5, that's just where we're going to plug it into our actual equation of quantity supplied divided by price here. So we're going to get 0.2 divided by 0.4, which is going to give us half here. Right. 0.5 is our answer. We don't have to worry about signs, positive or negative doesn't matter. That is going to be our answer, but now how do we analyze this? Guess what? It's the same as before. This is going to be inelastic, right? We got a number less than 1, it's going to be inelastic. Our supply is inelastic at this point. The quantity supplied rose less in percentage than the price, right? The price rose 40% here, but the quantity supplied only increased by 20%. It's inelastic. So we've got our same kind of summary down here, which is the same as we should remember where it's going to be elastic and in this case, I'm going to put e with a small s, that's elasticity of supply, right? Our price elasticity of supply is greater than 1, that is going to be elastic. Elasticity of supply less than 1, that is going to be inelastic like we got in our problem, and unit-elastic just like before, elasticity of supply equals 1. Cool. It's great how similar all of these calculations have been, right? Alright. Let's go ahead and do a little bit of practice related to price elasticity of supply.
Table of contents
- 0. Basic Principles of Economics1h 5m
- Introduction to Economics3m
- People Are Rational2m
- People Respond to Incentives1m
- Scarcity and Choice2m
- Marginal Analysis9m
- Allocative Efficiency, Productive Efficiency, and Equality7m
- Positive and Normative Analysis7m
- Microeconomics vs. Macroeconomics2m
- Factors of Production5m
- Circular Flow Diagram5m
- Graphing Review10m
- Percentage and Decimal Review4m
- Fractions Review2m
- 1. Reading and Understanding Graphs59m
- 2. Introductory Economic Models1h 10m
- 3. The Market Forces of Supply and Demand2h 26m
- Competitive Markets10m
- The Demand Curve13m
- Shifts in the Demand Curve24m
- Movement Along a Demand Curve5m
- The Supply Curve9m
- Shifts in the Supply Curve22m
- Movement Along a Supply Curve3m
- Market Equilibrium8m
- Using the Supply and Demand Curves to Find Equilibrium3m
- Effects of Surplus3m
- Effects of Shortage2m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 26m
- Percentage Change and Price Elasticity of Demand19m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
- Consumer Surplus and Willingness to Pay38m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Price Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Price Floors: Finding Areas54m
- 6. Introduction to Taxes and Subsidies1h 46m
- 7. Externalities1h 12m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. The Costs of Production2h 35m
- 11. Perfect Competition2h 23m
- Introduction to the Four Market Models2m
- Characteristics of Perfect Competition6m
- Revenue in Perfect Competition14m
- Perfect Competition Profit on the Graph20m
- Short Run Shutdown Decision33m
- Long Run Entry and Exit Decision18m
- Individual Supply Curve in the Short Run and Long Run6m
- Market Supply Curve in the Short Run and Long Run9m
- Long Run Equilibrium12m
- Perfect Competition and Efficiency15m
- Four Market Model Summary: Perfect Competition5m
- 12. Monopoly2h 13m
- Characteristics of Monopoly21m
- Monopoly Revenue12m
- Monopoly Profit on the Graph16m
- Monopoly Efficiency and Deadweight Loss20m
- Price Discrimination22m
- Antitrust Laws and Government Regulation of Monopolies11m
- Mergers and the Herfindahl-Hirschman Index (HHI)17m
- Four Firm Concentration Ratio6m
- Four Market Model Summary: Monopoly4m
- 13. Monopolistic Competition1h 9m
- 14. Oligopoly1h 26m
- 15. Markets for the Factors of Production1h 33m
- The Production Function and Marginal Revenue Product16m
- Demand for Labor in Perfect Competition7m
- Shifts in Labor Demand13m
- Supply of Labor in Perfect Competition7m
- Shifts in Labor Supply5m
- Differences in Wages6m
- Discrimination6m
- Other Factors of Production: Land and Capital5m
- Unions6m
- Monopsony11m
- Bilateral Monopoly5m
- 16. Income Inequality and Poverty35m
- 17. Asymmetric Information, Voting, and Public Choice39m
- 18. Consumer Choice and Behavioral Economics1h 16m
4. Elasticity
Price Elasticity of Supply
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