the price elasticity of supply measures how responsive This is a topic that many people are looking for. thetruthaboutdow.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, thetruthaboutdow.org would like to introduce to you AS-Level Economics Video 12 – Price Elasticity of Supply (PES). Following along are instructions in the video below:
“Welcome to video. 12 price elasticity of supply city that we re looking at and and it s if you like the odd one out because this is supply. All others were demand. Oh.
I wish that students would read exam. Questions more carefully because so many times. I ve seen students read exam. Questions about this elasticity price elasticity of supply.
And they read its demand and they write out a whole thing about demand and they get it all wrong then they get a zero. And it s such a shame. So price elasticity of supply is something quite different it is a measurement of the responsiveness of quantity supplied of a good when it s price changes okay so when the price of a good changes how easily can the suppliers. React.
We know that suppliers want to supply more a good when its price rises. And we know that they want to supply less and good when it s price falls. That s the upward sloping supply curve. But how quickly our suppliers able to react.
When the price of the good changes. That s what pe s. Is about if they cannot react quickly if they can t quickly supply more when the price goes up or if they can t quickly shut down the supply when the price falls. We say they have inelastic supply.
The good has inelastic supply of course. We can measure p es. With equations and the good news is that this always comes out positive. There s no negatives.
Involved here in the in the values of p years. Let me show you or you can probably work them out yourself. But let me show you the equations we use to calculate p es. So price elasticity of supply for a good be calculated by p over q.
As times change in quantity as overall change or the price. I put the s here in here. Just to remind you that we re looking about the quantity supplied enough demanded. But it is of course.
The same equation or we can say p es. Is the central change wanted to supply a simple change in price..
Either of these equations. Lead us to a pe s. Value. Which can be interpreted.
Thus if it comes out of 0. We say perfectly inelastic supply and that s unusual maybe it s only theoretically possible. But if it comes out of 0. Perfectly inelastic supply and that means that when the price changes.
There is no reaction at all in quantity supplied the supplier just carries on producing the same amount as before if the value of pe s. Lies between 0. And 1. We say in elastic supply.
The supplier reacts to the price change. But in a proportionately smaller way one is unitary elasticity meanings of quantity. Supplied changes in precisely the same proportion as price. Changed above 1.
And it s elastic supply b. Name of course that the supply react or the quantity supplied reacts by a greater proportion than price and ultimate ultimately. It could be infinity perfectly elastic supply. The slightest smallest change in price leads to a complete collapse of all the quantity supplied the ultimate insensitivity to a price change.
We can show different kinds of supply curves s. And these are numbered. According to the same on the previous page. So so there s the previous page.
So. This will be s 1 s. 2 s. 3 s.
4 s. 5. So s. 1 perfectly.
Inelastic. Just just visualize that supply curve..
There. If the price is here this is the quantity. If the price goes up to here. It s the same quantity.
There s no reaction in quantity whatever the price is it s the ultimate in the lack of sensitivity to price change. It s perfectly inelastic supply and just the other extreme perfectly elastic supply. They own only supply as finally happens at this price. Any change from that price.
There s no supply so vertical is perfectly inelastic horizontal is perfectly elastic now any supply curve that runs through the quantity axis is inelastic any supply curve. Whatever. The gradient running through the vertical axis is elastic and any supply curve running through the origin of this curve is unitary elasticity throughout its length. Okay so moving on i think.
This is the most this is the most important point when it comes to price elasticity of supply the issue of commodities commodities. Which are any naturally occurring substance not a manufactured product but a commodity will be agricultural goods and also natural resources mined from the earth grown timber cork and fossil fuels of course metals all of these are commodities now commodities are notorious for their inelastic supply so very very often in examinations. Commodity markets are explored as a testing ground for testing your knowledge on price elasticity of supply. So this is very very relevant.
So commodities usually had extremely inelastic supply. It s not easy for farms or mining companies. Etc to react quickly to price changes and change their quantity supplied rapidly think about it imagine you re a farmer. You grow.
Carrots. You ve got ten fields. You just planted them. And the carrots.
Seeds or. However. Carrots. Grow are growing and i know you argue if you re done.
If you ve planted and now you re wait and let s say it takes. I don t know a year for the carrots to grow and be harvested and sold if whatever happens to the price of carrots during that time you re committed to growing that many carrots. If the price goes way up. You can t instantly grow have more cameras for sale.
You might rush off and plant another fields worth of care. But there s nothing you gotta wait and if and if god forbid doctors discover that eating..
Carrots is very bad for you. And no one wants to eat. Carrots. And the price of carrots collapses because there s no demand.
What are you going to do about it you re stuck growing. Carrots. You can t click your fingers. And turn those carrots into potatoes.
So you cannot change your supply. That s that that s the problem for farmers mining companies. It s so expensive to explore and locate and get permission to drill and start drilling down for oil for coal for gold whatever that they can t simply shut down or quickly open up again on a day to day basis as the price of the commodity that they are extracting rises or falls. They have to take much long longer term commitments and do not react and cannot react quickly when prices change.
So commodities have this very inelastic supply. The suppliers cannot react quickly they neither find it easy to store their product in advance in the case of a price rise nor to reduce production quickly in the case of a falling price like i said with a carrot bun or imagine you re a fruit producer and you produce fresh strawberries. You can t simply have a warehouse full of fresh strawberries that you grew in the past just waiting for some price rise in the future. So you can roll out these fresh strawberries and quickly have them for sale.
Know they re going to go off. They re going to go wrong. And even with with the commodities that don t go off or go off very slowly coffee beans cocoa beans or even fossil fuels like oil or gas. These things are very expensive to store and it may not be possible realistically to produce all of this store it for long periods of time securely and safely in the hope that at some point in the future.
There ll be a rise in the price. It s just not feasible and so for this reason. Neither can the commodity be stored in advance. Nor can product quickly be raised norcom production be quickly shut down.
And this is the root cause of the inelastic supply of these kinds of products. Now just one last point. Even the commodities price elasticity of supply becomes more elastic over longer time periods. The longer.
The time period under consideration the more elastic is the supply even with commodities that carrot farmer. If we re talking about one week. Cannot change the supply of their carrots. You know they re committed to what they re growing.
However we re talking about five years well in that amount of time. I mean if the price of carrots permanently goes down well certainly over a number of years..
They ll be able to reduce the quantity. They re supplying because they ll have time to to finish that crop go up prepare the ground and grow something else in the future. So short the shorter the period of time under consideration the more inelastic the supply the longer the period of time. The more elastic.
The supply now one last point just to amuse you how long does it take for a chicken to grow was an extremely important issue in economics. What it is actually because chicken farmers you know they re committed to growing their chickens. And it takes about nine months pretty keen to reach full maturity a mature chicken nice concept but a chicken takes about nine months to grow to being one kilo well that s that s expensive for the farmer and of course once they re committed to growing their chickens that s it i ve got to grow their chickens and you know whatever happens to the price of chickens. They can t react they re just growing their chickens.
And it takes nine months so hard working scientists and marketing and economists. These kinds of people have worked very hard to shorten that time through feeding chickens water. Retention chemicals in their food. Get bulkier and heavier more quickly.
24 hour daylight in in their little sheds or battery farms. So that they because chickens you know when it s daylight. They have to eat so if you defeat thing always think it s daily like they re always eating and and this bulks up the chickens. Much more quickly gross hormones.
Etc. And these clever people have been able to shorten this nine months into just seven days. So now a chicken can be made into being one kilo in a matter of just over one month a month in a day and that has of course increased the elasticity of supply because now chicken farmers who make grow these kinds of chickens. Which are cheaper to produce have more flexibility they can react more quickly to price changes can t they if it only takes thirty seven days to produce chicken and mature chicken and and of course.
That s not only as somebody once said to me. It s not only increase the elasticity of supply of the chicken is probably increase the elasticity of the chicken as well it can t be very tasty you ve got to wonder another quality of such of substance. Those lovely happy free range chickens that run around farms where we re farm wives throw out corn like in the movies and those chickens take nine months to grow. But they re probably much tastier more inelastic both in supply and probably in texture as well anyway.
I don t need chicken. I don t know if you if you had it for lunch. I apologize maybe i should have put a warning at the front of this video. But perhaps the chicken that you ate in your chicken sandwich was was the more elastic type both in chicken terms ending supply terms.
They got gone long enough now i better turn off this video see you in ” ..
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