1. Price elasticity of supply

2. Price elasticity of supply
The market for tractors is supplied by two firms, X and
Y, each initially having 50 % of the market.
A 10 % increase in the price of tractors leads to an increase
in output from firm X of 10 % and from firm Y of 20 %. What
is the price elasticity of supply of tractors in this market?

3. Price elasticity of supply
The market for tractors is supplied by two firms, X and
Y, each initially having 50 % of the market.
A 10 % increase in the price of tractors leads to an increase
in output from firm X of 10 % and from firm Y of 20 %. What
is the price elasticity of supply of tractors in this market?
Price change = 10%, total output change is 15%
Therefore the price elasticity of supply = +1.5

4. Elasticity of supply

5. 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

6. 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

7. 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 D1 D2
Quantity Quantity

8. 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
P1 S1
D1 D2 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 S1
P1 S1
P1
D1 D2 D1 D2
Quantity Q1 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 S1
P2
P1 S1
P1
D1 D2 D1 D2
Quantity Q1 Q2 Quantity

11. Give three reasons why an industry’s supply
curve might be price elastic in the short term
Short
Spare High stock
production
capacity levels
times