Topic 9: Elasticity of supply

• Elasticity of supply measures the responsiveness of quantity supplied (QS) to changes in price.
• The formula for elasticity of supply is: % change in quantity supplied (QS) % change in price.
• Elasticity of supply can be categorized into three types: elastic, unitary, and inelastic.
• Perfectly elastic supply is represented by a coefficient of infinity, meaning that if price reduces zero unit will be produced but if it increases the infinite number of unit will be supplied.
• At one price an infinite set of goods is supplied.
• Perfectly inelastic supply is represented by a coefficient of zero, meaning that supply is fixed and not affected by changes in price.
• Unitary supply curve cuts the origin and the coefficient is 1, meaning that the percentage change in quantity supplied is equal to the percentage change in price.
• Elastic supply is any supply curve that meets the vertical axis, meaning that quantity supplied is sensitive to price changes.
• Inelastic supply curve meets the horizontal line, meaning that quantity supplied is not sensitive to price changes.
• Given the following data for the supply and demand of movie tickets, calculate the price elasticity of supply when the price changes from $9.00 to $10.00.
• When the price of shirt increases from $5-$6, the supply of shirt increases from 20-25.
• Price change from $5-8 results in a quantity change from 4-6.
• Elasticity of supply increases with time as producers invest in the training of workers and the improvement of technology.
• Momentary supply is constrained by time, meaning that supply is fixed and does not respond to changes in demand.
• Short run supply is constrained by fixed factors of production, meaning that supply is inelastic.
• Long run supply is not constrained by fixed factors of production, meaning that supply is more elastic.
• Factor mobility, the ease to which factors of production can move from one use to the next, affects elasticity.
• The length of production period, the quicker a good is to produce the easier it will be for the supplier to respond to price changes.
• Ease of storage, elasticity of supply increases if goods are easy to store.
• Natural constraints, the greater the natural constraints on supply the greater the inelasticity of supply.
• Skill of worker, supply is inelastic if more highly skilled workers are needed in production.
• Cost of production, the cheaper the cost of production the greater the elasticity.
• Existence of spare capacity, the more space there is to store goods the greater the elasticity.