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P<br />
Elasticity of supply<br />
es = %DQsupplied<br />
%DP<br />
Given a supply function, at a price [P1], Q1 is produced and offered<br />
for sale.<br />
At a higher price [P2], a larger<br />
quantity, Q2, will be produced<br />
and offered for sale.<br />
P2<br />
P1<br />
+DP<br />
Q1<br />
+DQ<br />
Q2<br />
The increase in price [ DP ], induces<br />
a larger quantity goods [ DQ]for<br />
sale.<br />
The more responsive sellers are to<br />
DP, the greater the absolute value of es.<br />
Q /ut<br />
[The supply function is “flatter”or<br />
more elastic]<br />
Fall '97 www.elearnuganda.net Slide 43
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