An22 increasein price 0 100125 q

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Unformatted text preview: tutable >0 Irrespective 0 Complement >0 2.5.3 THE ELASTICITY OF SUPPLY 2.5.3 price elasticity of supply a measure of how much the quantity supplied of a good responds to a change in the price of that good. Computing the Price Elasticity of Supply Computing Price elasticity of supply= Es= Percentage change in quantity supplied Percentage change in price ⊿Q/Q ⊿P/P E.G., an increase in the price of milk from $2.85 to $3.15 a gallon raises the amount that dairy farmers produce from 9,000 to 11,000 gallons per month. Percentage change in price = (3.15­2.85)/3=10% Percentage change in quantity supplied =(11,000­9,000)/10,000=20% Price elasticity of supply (Es) =20%/10%=2.0 In this example, the elasticity of 2 reflect the fact that the quantity supplied moves proportionately twice as much as the price. Price Elasticity of Supply (1) Price P (a) Perfectly Inelastic Supply: Elasticity=0 S P $5$5 S $5$5 4 (b) Inelastic Supply: Elasticity <1 4 1.An increase in price… 0 1.An 22% increa...
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This note was uploaded on 12/06/2011 for the course BUSINESS Finance taught by Professor Qiuxin during the Summer '11 term at Nanjing University.

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