Elasticity

FORMULA

DEGREE OF PRICE ELASTICITY OF SUPPLY

DEGREE	DESCRIPTION	VALUE OF COEFFICIENT	SLOPE OF SUPPLY CURVE
ELASTIC	%CHANGE Qs > %CHANGE P	SUPPLY ELASTICITY > 1
INELASTIC	%CHANGE Qs < %CHANGE P	SUPPLY ELASTICITY < 1
UNITARY	%CHANGE Qs = %CHANGE P	SUPPLY ELASTICITY = 1
PERFECTLY ELASTIC	AT LEVEL P,Qs is infinity	SUPPLY ELASTICITY = INFINITY
PERFECTLY INELASTIC	NO CHANGE IN Qs ALTHOUGH P CHANGES	SUPPLY ELASTICITY = 0

 

example for Tesco bread

inelastic demand

• for petrol

 petrol has few alternatives because people with a car need to buy petrol. For many driving is a necessity. There are weak substitutes, such as train, walking and the bus. But, generally, if the price of petrol goes up, demand proves very inelastic.

elasticity of supply

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.

We know that the original price is $9 and the new price is $10, so we have Price (Old) =$9 and Price (New) = $10. From the chart, we see that the quantity supplied when the price is $9 is 75 and when the price is $10 is 105.

So we have:

Price (Old) = $9
Price (New) = $10

Quantity Supplied (Old) = 75

Quantity Supplied (New) = 105