Price Elasticity Of Supply
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Business Economics (MBA Morning) Assignment No # (1-5)
Name
:
Parwaiz Ali Jiskani
Reg. no :
7241
Class
MBA(Morning)
:
Class Day:
Wednesday (12:00 to 3:00)
Date of submission:
Oct. 29, 2008
______________________________________________________________________________________ 1 IQRA UNIVERSITY --
SUBMITED TO: MR. Asif Qureshi Elastic Supply : If there is one percent changes in price the impact of this change on quantity supplied will be greater than one percent is called Elastic Supply.
PES > 1
Formula:
Ignore all negative signs.
In formula the symbols stands for. :
Price Elasticity of Supply
:
Delta Stands for “change in”
∆Q
:
Change in Quantity Supply
∆P
:
Change in Price
Q1
:
Initial Quantity Supplied
Q2
:
Current Quantity Supplied
P1
:
Initial Price
P2
:
Current Price
PES
∆
______________________________________________________________________________________ 2 IQRA UNIVERSITY --
Examples for Elastic Supply. Example no:1 If the price of book increased by $150 to $185 the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by more than 1% than the price increased called elastic supply. Schedule for Elastic Supply: (BOOK) Price ($) P1 150
Quantity (books) Q1 Q2 10000 14000
P2 185
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 10000-14000 ) (10000+14000)/2
PES
PES
=
=
÷ ( 150-185 ) (150+185)/2
4000 24000/2
÷ 35_
4000 12000
÷ 35_ ÷ 0.2089
PES
=
0.3333
PES
=
1.59
335/2
167.5
( Elastic Supply ) ______________________________________________________________________________________ 3 IQRA UNIVERSITY --
Graph for Elastic Supply
P ric e
BOOK S u p p ly
$185 $150
10000
14000
Q u a n tity
______________________________________________________________________________________ 4 IQRA UNIVERSITY --
Example no:2 If the price of Pepsi increased by $30 to $35 the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by more than 1% than the price increased called elastic of supply. Schedule for Elastic Supply: (PEPSI) Price ($) P1 30
Quantity (million bottle) Q1 Q2 8 10
P2 35
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 8-10 ) (8+10)/2
÷ ( 30-35 )
2 18/2
÷ 5_
PES
=
(30+35)/2
65/2
PES
=
2 9
÷
PES
=
0.2222
÷ 0.153846
PES
=
1.44
5_ 32.5
( Elastic Supply )
______________________________________________________________________________________ 5 IQRA UNIVERSITY --
Graph for Elastic Supply
P ric e
Pepsi S u p p ly
$35 $30
8
10
Q u a n tity (m illio n )
______________________________________________________________________________________ 6 IQRA UNIVERSITY --
Inelastic Supply: If there is one percent changes in price the impact of this change on quantity Supplied will be lesser than one percent is called Inelastic Supply.
PES < 1
Formula:
Ignore all negative signs.
In formula the symbols stands for. :
Price Elasticity of Supply
:
Delta Stands for “change in”
∆Q
:
Change in Quantity Supply
∆P
:
Change in Price
Q1
:
Initial Quantity Supplied
Q2
:
Current Quantity Supplied
P1
:
Initial Price
P2
:
Current Price
PES
∆
______________________________________________________________________________________ 7 IQRA UNIVERSITY --
Examples for Inelastic Supply. Example no:1 If the price of Mangoes increased by $20 to $30 per Kg the quantity Supplied by suppliers will also be increased according to the law of supply. If the “supply increased by less than 1%” than the price increased called inelastic supply. Schedule for Inelastic Supply: (Mangoes) Price ($) P1 20
Quantity (bags) Q1 Q2 5000 6000
P2 30
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 5000-6000 ) (5000+6000)/2
PES
=
1000 11000/2
=
1000 5500
PES
=
0.181818
PES
=
0.45
(20+30)/2
÷ 10_ 50/2
÷
PES
÷ ( 20-30 )
5_ 25
÷ 0.4
( Inelastic Supply )
Graph For inelastic Supply ______________________________________________________________________________________ 8 IQRA UNIVERSITY --
P ric e
M angoes
S u p p ly
$30 $20
5000 6000
Q u a n tity
Example no:2 ______________________________________________________________________________________ 9 IQRA UNIVERSITY --
In Short Run if the price of Cars increased by $350000 to $425000 the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by less than 1% than the price increased called inelastic of supply. Schedule for Inelastic Supply: (Suzuki Motors Car) Price ($) P1 P2 350000 425000
Quantity (thousands) Q1 Q2 7600 8550
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 7600-8550 ) (7600+8550)/2
PES
PES
=
=
950 16150/2 950 8075
PES
=
0.11768
PES
=
0.607
÷ ( 350000+425000 ) (350000+425000)/2
÷ 75000_ 775000/2
÷ 75000_ 387500
÷ 0.1935 ( Inelastic Supply )
Graph For inelastic Supply
______________________________________________________________________________________ 10 IQRA UNIVERSITY --
P ric e
C a rs
S u p p ly
$425000 $350000
7600 8550
Q u a n tity
Unit Elastic Supply. If there is one percent changes in price the impact of this change on quantity supplied will be equal to one percent is called Unit Elastic Supply. ______________________________________________________________________________________ 11 IQRA UNIVERSITY --
PES = 1
Formula:
Ignore all negative signs.
In formula the symbols stands for. :
Price Elasticity of Supply
:
Delta Stands for “change in”
∆Q
:
Change in Quantity Supply
∆P
:
Change in Price
Q1
:
Initial Quantity Supplied
Q2
:
Current Quantity Supplied
P1
:
Initial Price
P2
:
Current Price
PES
∆
Examples for Unit Elastic Supply. Example no:1 ______________________________________________________________________________________ 12 IQRA UNIVERSITY --
If the price of Video Games increased by $300 to $330 the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by same % as the % increase in price called Unit elastic supply. Schedule for Unit Elastic Supply: (Video Games) Price ($) P1 300
Quantity (units) Q1 Q2 4000 4400
P2 330
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 4000-4400 ) (4000+4400)/2
PES
PES
=
=
400 8400/2
÷ ( 300-330 ) (300+330)/2
÷ 35_ 630/2
÷ 35_
400 4200
315
PES
=
0.952
PES
=
1
÷ 0.952 (Unit Elastic Supply )
Graph for Unit Elastic Supply
______________________________________________________________________________________ 13 IQRA UNIVERSITY --
P ric e
V id e o g a m e s S u p p ly
$330 $300
4000 4400
Q u a n tity
Example no:2 ______________________________________________________________________________________ 14 IQRA UNIVERSITY --
If the price of Cigerate increased by $25 to $32.5 per packet the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by same % as the % increase in price called Unit elastic supply. Schedule for Unit Elastic Supply: (Cigerate) Price ($) P1 25
Quantity (dozen box) Q1 Q2 180 234
P2 32.5
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 180-234 ) (180+234)/2
PES
=
÷ ( 30-32.5 ) (30+32.5)/2
÷ 7.5_
54 414/2
57.5/2
÷
PES
=
2 207
PES
=
0.26086
PES
=
1
7.5_ 28.75
÷ 0.26086
(Unit Elastic Supply )
Graph for Unit Elastic Supply
______________________________________________________________________________________ 15 IQRA UNIVERSITY --
P ric e
C ig e r a te
S u p p ly
$ 3 2 .5 0 $25
180
234
Q u a n tity (B o x )
Perfectly Elastic Supply:
______________________________________________________________________________________ 16 IQRA UNIVERSITY --
If there is percent change in price impact of the change will be very huge in quantity Supplied called Perfectly Elastic Supply.
PES
∞ (infinity)
Formula:
Ignore all negative signs.
In formula the symbols stands for. :
Price Elasticity of Supply
:
Delta Stands for “change in”
∆Q
:
Change in Quantity Supply
∆P
:
Change in Price
Q1
:
Initial Quantity Supplied
Q2
:
Current Quantity Supplied
P1
:
Initial Price
P2
:
Current Price
PES
∆
Examples for Perfectly Elastic Supply. ______________________________________________________________________________________ 17 IQRA UNIVERSITY --
Example no:1 In Long Run the price of TV sets increased by $18000 to $20600 the quantity Supplied by suppliers will also be increased according to the law of supply. If the “supply increased by Huge Quantity as compare to % change in the price increased called perfectly elastic supply. Schedule for Perfectly Elastic Supply: (T-V) Quantity
Quantity (Units)
Quantity (thousands)P1P2Q1Q21400 014500350015000P2Q1Q21 800018500500012000 Price ($) Calculations: PES ÷ ( P1-P2 )
15000)
=
( Q1-Q2 )
(Q1+Q2)/2
(P1+P2)/2
PES = (3500÷ ( 14000-14500 )
(35000+50000)/2 (14000+14500)/2 PES ÷
= 500_
11500 18500/2
28500/2 PES 500_ 9250
=
PES 0.035
=
11500
÷
14250
PES
1.62162 =
÷ 46.332
( Perfectly Elastic Supply ) ______________________________________________________________________________________ 18 IQRA UNIVERSITY --
Graph for Perfectly Elastic Supply
Perfectly Inelastic Supply: If there is percentage change in price impact of the change on quantity Supplied would remain same or quantity of supply remains same called perfectly inelastic Supply. PES = 0 Formula:
Ignore all negative signs. In formula the symbols stands for. PES : of Supply
Price Elasticity
∆
Delta Stands
:
for “change in”
∆Q
: Change in
Quantity Supply ∆P
: Change in
Price Q1
:
Initial
Quantity Supplied Q2
:
______________________________________________________________________________________ 19 IQRA UNIVERSITY --
Current Quantity Supplied P1
:
Initial
Price P2
: Current Price
Examples for
Perfectly Inelastic Supply.
Example no:1 If the price of
Beach Front Land is increased by $501700 to $603400 there will be no change in supply.
If the “supply
remain same and % change in the price increased called perfectly inelastic supply. ______________________________________________________________________________________ 20 IQRA UNIVERSITY --
Schedule for Perfectly inelastic Supply: (Beach Front Land)
Price ($)
Calculations:
PES = ( Q1-Q2 )
÷ ( P1-P2 )
(Q1+Q2)/2 (P1+P2)/2 PES = ( 5000-12000 )
÷
( 18000-18500 ) (5000+12000)/2 (18000+18500)/2 PES = 7000
÷
500_
17000/2 36500/2 ______________________________________________________________________________________ 21 IQRA UNIVERSITY --
PES =
7000
÷
500_ 8500
18250
PES =
0.82352
÷
0.0273 PES = 30.58 ( Perfectly Elastic Supply )
Graph for Perfectly Elastic Supply
Example no:2 ______________________________________________________________________________________ 22 IQRA UNIVERSITY --
In Long Run the price of Computer sets increased by $14000 to $15000 the quantity Supplied by suppliers will also be increased according to the law of supply. If the “supply increased by Huge Quantity as compare to % change in the price increased called perfectly elastic supply. Schedule for Perfectly Elastic Supply: Price ($) P1P1 P2 501700 603400
Q1 100000
Q2 100000
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 100000-100000 ) (100000+100000)/2
÷ ( 501700-603400 )
PES
=
0 ÷ 101700_ 200000/2 1105100/2
PES
=
0
÷
(501700+603400)/2
101700_
______________________________________________________________________________________ 23 IQRA UNIVERSITY --
100000 PES
=
0
PES
=
0
552550
÷ 0.1840 (Perfectly Inelastic Supply)
Graph for Perfectly inelastic Supply
Price
Beach Front Land Supply
$603400 $501700
0
100000
Q uantity
______________________________________________________________________________________ 24 IQRA UNIVERSITY --
Example no:2 If the price of Fuel increased by $105per barrel to $200 per barrel the quantity Supplied by PSO to the Railways will remain same. If the “supply remain same and no change in supply called perfectly inelastic supply. Schedule for Perfectly Inelastic Supply: Price ($ per barrel) P1 P2 105 200
Quantity (barrel)per day Q1 Q2 300 300
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
(300-300) ÷ ( 105-200 ) (300+300)/2 (105+200)/2
PES
=
0 600/2
PES
=
0 300
÷ 95_ 305/2
÷
95_ 152.5
______________________________________________________________________________________ 25 IQRA UNIVERSITY --
PES
=
0
PES
=
0
÷ 0.6229 ( Perfectly inelastic Supply )
Graph for Perfectly inelastic Supply
P ric e
F u e l to R a ilw a y
S u p p ly
$200 $105
0
300
Q u a n t ity (b a rre l)
______________________________________________________________________________________ 26 IQRA UNIVERSITY --
Name
:
Parwaiz Ali Jiskani
Reg. no :
7241
Class
MBA(Morning)
:
Class Day:
Wednesday (12:00 to 3:00)
Date of submission:
Oct. 29, 2008
______________________________________________________________________________________ 1 IQRA UNIVERSITY --
SUBMITED TO: MR. Asif Qureshi Elastic Supply : If there is one percent changes in price the impact of this change on quantity supplied will be greater than one percent is called Elastic Supply.
PES > 1
Formula:
Ignore all negative signs.
In formula the symbols stands for. :
Price Elasticity of Supply
:
Delta Stands for “change in”
∆Q
:
Change in Quantity Supply
∆P
:
Change in Price
Q1
:
Initial Quantity Supplied
Q2
:
Current Quantity Supplied
P1
:
Initial Price
P2
:
Current Price
PES
∆
______________________________________________________________________________________ 2 IQRA UNIVERSITY --
Examples for Elastic Supply. Example no:1 If the price of book increased by $150 to $185 the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by more than 1% than the price increased called elastic supply. Schedule for Elastic Supply: (BOOK) Price ($) P1 150
Quantity (books) Q1 Q2 10000 14000
P2 185
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 10000-14000 ) (10000+14000)/2
PES
PES
=
=
÷ ( 150-185 ) (150+185)/2
4000 24000/2
÷ 35_
4000 12000
÷ 35_ ÷ 0.2089
PES
=
0.3333
PES
=
1.59
335/2
167.5
( Elastic Supply ) ______________________________________________________________________________________ 3 IQRA UNIVERSITY --
Graph for Elastic Supply
P ric e
BOOK S u p p ly
$185 $150
10000
14000
Q u a n tity
______________________________________________________________________________________ 4 IQRA UNIVERSITY --
Example no:2 If the price of Pepsi increased by $30 to $35 the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by more than 1% than the price increased called elastic of supply. Schedule for Elastic Supply: (PEPSI) Price ($) P1 30
Quantity (million bottle) Q1 Q2 8 10
P2 35
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 8-10 ) (8+10)/2
÷ ( 30-35 )
2 18/2
÷ 5_
PES
=
(30+35)/2
65/2
PES
=
2 9
÷
PES
=
0.2222
÷ 0.153846
PES
=
1.44
5_ 32.5
( Elastic Supply )
______________________________________________________________________________________ 5 IQRA UNIVERSITY --
Graph for Elastic Supply
P ric e
Pepsi S u p p ly
$35 $30
8
10
Q u a n tity (m illio n )
______________________________________________________________________________________ 6 IQRA UNIVERSITY --
Inelastic Supply: If there is one percent changes in price the impact of this change on quantity Supplied will be lesser than one percent is called Inelastic Supply.
PES < 1
Formula:
Ignore all negative signs.
In formula the symbols stands for. :
Price Elasticity of Supply
:
Delta Stands for “change in”
∆Q
:
Change in Quantity Supply
∆P
:
Change in Price
Q1
:
Initial Quantity Supplied
Q2
:
Current Quantity Supplied
P1
:
Initial Price
P2
:
Current Price
PES
∆
______________________________________________________________________________________ 7 IQRA UNIVERSITY --
Examples for Inelastic Supply. Example no:1 If the price of Mangoes increased by $20 to $30 per Kg the quantity Supplied by suppliers will also be increased according to the law of supply. If the “supply increased by less than 1%” than the price increased called inelastic supply. Schedule for Inelastic Supply: (Mangoes) Price ($) P1 20
Quantity (bags) Q1 Q2 5000 6000
P2 30
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 5000-6000 ) (5000+6000)/2
PES
=
1000 11000/2
=
1000 5500
PES
=
0.181818
PES
=
0.45
(20+30)/2
÷ 10_ 50/2
÷
PES
÷ ( 20-30 )
5_ 25
÷ 0.4
( Inelastic Supply )
Graph For inelastic Supply ______________________________________________________________________________________ 8 IQRA UNIVERSITY --
P ric e
M angoes
S u p p ly
$30 $20
5000 6000
Q u a n tity
Example no:2 ______________________________________________________________________________________ 9 IQRA UNIVERSITY --
In Short Run if the price of Cars increased by $350000 to $425000 the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by less than 1% than the price increased called inelastic of supply. Schedule for Inelastic Supply: (Suzuki Motors Car) Price ($) P1 P2 350000 425000
Quantity (thousands) Q1 Q2 7600 8550
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 7600-8550 ) (7600+8550)/2
PES
PES
=
=
950 16150/2 950 8075
PES
=
0.11768
PES
=
0.607
÷ ( 350000+425000 ) (350000+425000)/2
÷ 75000_ 775000/2
÷ 75000_ 387500
÷ 0.1935 ( Inelastic Supply )
Graph For inelastic Supply
______________________________________________________________________________________ 10 IQRA UNIVERSITY --
P ric e
C a rs
S u p p ly
$425000 $350000
7600 8550
Q u a n tity
Unit Elastic Supply. If there is one percent changes in price the impact of this change on quantity supplied will be equal to one percent is called Unit Elastic Supply. ______________________________________________________________________________________ 11 IQRA UNIVERSITY --
PES = 1
Formula:
Ignore all negative signs.
In formula the symbols stands for. :
Price Elasticity of Supply
:
Delta Stands for “change in”
∆Q
:
Change in Quantity Supply
∆P
:
Change in Price
Q1
:
Initial Quantity Supplied
Q2
:
Current Quantity Supplied
P1
:
Initial Price
P2
:
Current Price
PES
∆
Examples for Unit Elastic Supply. Example no:1 ______________________________________________________________________________________ 12 IQRA UNIVERSITY --
If the price of Video Games increased by $300 to $330 the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by same % as the % increase in price called Unit elastic supply. Schedule for Unit Elastic Supply: (Video Games) Price ($) P1 300
Quantity (units) Q1 Q2 4000 4400
P2 330
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 4000-4400 ) (4000+4400)/2
PES
PES
=
=
400 8400/2
÷ ( 300-330 ) (300+330)/2
÷ 35_ 630/2
÷ 35_
400 4200
315
PES
=
0.952
PES
=
1
÷ 0.952 (Unit Elastic Supply )
Graph for Unit Elastic Supply
______________________________________________________________________________________ 13 IQRA UNIVERSITY --
P ric e
V id e o g a m e s S u p p ly
$330 $300
4000 4400
Q u a n tity
Example no:2 ______________________________________________________________________________________ 14 IQRA UNIVERSITY --
If the price of Cigerate increased by $25 to $32.5 per packet the quantity Supplied by suppliers will also be increased according to the law of supply. If the supply increased by same % as the % increase in price called Unit elastic supply. Schedule for Unit Elastic Supply: (Cigerate) Price ($) P1 25
Quantity (dozen box) Q1 Q2 180 234
P2 32.5
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 180-234 ) (180+234)/2
PES
=
÷ ( 30-32.5 ) (30+32.5)/2
÷ 7.5_
54 414/2
57.5/2
÷
PES
=
2 207
PES
=
0.26086
PES
=
1
7.5_ 28.75
÷ 0.26086
(Unit Elastic Supply )
Graph for Unit Elastic Supply
______________________________________________________________________________________ 15 IQRA UNIVERSITY --
P ric e
C ig e r a te
S u p p ly
$ 3 2 .5 0 $25
180
234
Q u a n tity (B o x )
Perfectly Elastic Supply:
______________________________________________________________________________________ 16 IQRA UNIVERSITY --
If there is percent change in price impact of the change will be very huge in quantity Supplied called Perfectly Elastic Supply.
PES
∞ (infinity)
Formula:
Ignore all negative signs.
In formula the symbols stands for. :
Price Elasticity of Supply
:
Delta Stands for “change in”
∆Q
:
Change in Quantity Supply
∆P
:
Change in Price
Q1
:
Initial Quantity Supplied
Q2
:
Current Quantity Supplied
P1
:
Initial Price
P2
:
Current Price
PES
∆
Examples for Perfectly Elastic Supply. ______________________________________________________________________________________ 17 IQRA UNIVERSITY --
Example no:1 In Long Run the price of TV sets increased by $18000 to $20600 the quantity Supplied by suppliers will also be increased according to the law of supply. If the “supply increased by Huge Quantity as compare to % change in the price increased called perfectly elastic supply. Schedule for Perfectly Elastic Supply: (T-V) Quantity
Quantity (Units)
Quantity (thousands)P1P2Q1Q21400 014500350015000P2Q1Q21 800018500500012000 Price ($) Calculations: PES ÷ ( P1-P2 )
15000)
=
( Q1-Q2 )
(Q1+Q2)/2
(P1+P2)/2
PES = (3500÷ ( 14000-14500 )
(35000+50000)/2 (14000+14500)/2 PES ÷
= 500_
11500 18500/2
28500/2 PES 500_ 9250
=
PES 0.035
=
11500
÷
14250
PES
1.62162 =
÷ 46.332
( Perfectly Elastic Supply ) ______________________________________________________________________________________ 18 IQRA UNIVERSITY --
Graph for Perfectly Elastic Supply
Perfectly Inelastic Supply: If there is percentage change in price impact of the change on quantity Supplied would remain same or quantity of supply remains same called perfectly inelastic Supply. PES = 0 Formula:
Ignore all negative signs. In formula the symbols stands for. PES : of Supply
Price Elasticity
∆
Delta Stands
:
for “change in”
∆Q
: Change in
Quantity Supply ∆P
: Change in
Price Q1
:
Initial
Quantity Supplied Q2
:
______________________________________________________________________________________ 19 IQRA UNIVERSITY --
Current Quantity Supplied P1
:
Initial
Price P2
: Current Price
Examples for
Perfectly Inelastic Supply.
Example no:1 If the price of
Beach Front Land is increased by $501700 to $603400 there will be no change in supply.
If the “supply
remain same and % change in the price increased called perfectly inelastic supply. ______________________________________________________________________________________ 20 IQRA UNIVERSITY --
Schedule for Perfectly inelastic Supply: (Beach Front Land)
Price ($)
Calculations:
PES = ( Q1-Q2 )
÷ ( P1-P2 )
(Q1+Q2)/2 (P1+P2)/2 PES = ( 5000-12000 )
÷
( 18000-18500 ) (5000+12000)/2 (18000+18500)/2 PES = 7000
÷
500_
17000/2 36500/2 ______________________________________________________________________________________ 21 IQRA UNIVERSITY --
PES =
7000
÷
500_ 8500
18250
PES =
0.82352
÷
0.0273 PES = 30.58 ( Perfectly Elastic Supply )
Graph for Perfectly Elastic Supply
Example no:2 ______________________________________________________________________________________ 22 IQRA UNIVERSITY --
In Long Run the price of Computer sets increased by $14000 to $15000 the quantity Supplied by suppliers will also be increased according to the law of supply. If the “supply increased by Huge Quantity as compare to % change in the price increased called perfectly elastic supply. Schedule for Perfectly Elastic Supply: Price ($) P1P1 P2 501700 603400
Q1 100000
Q2 100000
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
( 100000-100000 ) (100000+100000)/2
÷ ( 501700-603400 )
PES
=
0 ÷ 101700_ 200000/2 1105100/2
PES
=
0
÷
(501700+603400)/2
101700_
______________________________________________________________________________________ 23 IQRA UNIVERSITY --
100000 PES
=
0
PES
=
0
552550
÷ 0.1840 (Perfectly Inelastic Supply)
Graph for Perfectly inelastic Supply
Price
Beach Front Land Supply
$603400 $501700
0
100000
Q uantity
______________________________________________________________________________________ 24 IQRA UNIVERSITY --
Example no:2 If the price of Fuel increased by $105per barrel to $200 per barrel the quantity Supplied by PSO to the Railways will remain same. If the “supply remain same and no change in supply called perfectly inelastic supply. Schedule for Perfectly Inelastic Supply: Price ($ per barrel) P1 P2 105 200
Quantity (barrel)per day Q1 Q2 300 300
Calculations:
PES
=
( Q1-Q2 ) ÷ ( P1-P2 ) (Q1+Q2)/2 (P1+P2)/2
PES
=
(300-300) ÷ ( 105-200 ) (300+300)/2 (105+200)/2
PES
=
0 600/2
PES
=
0 300
÷ 95_ 305/2
÷
95_ 152.5
______________________________________________________________________________________ 25 IQRA UNIVERSITY --
PES
=
0
PES
=
0
÷ 0.6229 ( Perfectly inelastic Supply )
Graph for Perfectly inelastic Supply
P ric e
F u e l to R a ilw a y
S u p p ly
$200 $105
0
300
Q u a n t ity (b a rre l)
______________________________________________________________________________________ 26 IQRA UNIVERSITY --
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