Price Elasticity of Supply
If gasoline supply increases 5% after a 25% price rise, what’s the elasticity and what does it indicate?
PES=5%/25%=0.2
Elasticity = 0.2 → less than 1
This means supply is relatively inelastic — producers are not very responsive to price changes.
If the price of coffee rises by 20% and demand falls by 25%, compute PED.
PED=−25%/20%=−1.25
PED = –1.25
The negative sign shows the inverse relationship between price and demand.
The absolute value (1.25) is greater than 1, meaning demand is relatively elastic — consumers are quite responsive to price changes.
A steel factory increases supply from 1,000 to 1,300 tons when price rises 20%. Compute PES.
PES=(300/1150)/20%
PES=0.2609/0.20=1.304 or 1.30
The steel supply is relatively elastic, meaning suppliers are quite responsive to price changes.
When mobile data becomes cheaper, people use 30% more. If price fell 15%, compute PED.
PED=30%/−15%=−2
ED = −2 → negative sign shows the inverse relation between price and demand.
In absolute value, ∣PED∣=2>1|PED| = 2 > 1∣PED∣=2>1 → relatively elastic demand.
Organic Honey Supply Adjustment
A local beekeeper produces organic honey. When the market price rises from ₱400 to ₱600 per jar, the quantity he supplies increases from 500 to 650 jars. The increase in supply took 6 months due to time needed to increase bee colonies.
Calculate the price elasticity of supply between ₱400 and ₱600.
Predict how elasticity might change if production capacity was immediately flexible.
Graph the supply curve and indicate the elasticity range.
Es=0.2609/0.4=0.6525
Es=0.65<1 → Relatively inelastic supply.
This means the beekeeper cannot quickly adjust production even with higher prices because expanding bee colonies takes time (6 months).
If the beekeeper could quickly increase production (e.g., by having spare colonies or modern equipment), then:
The percentage change in quantity would rise faster for the same price change.
Hence, elasticity would increase (Eₛ > 1) → supply becomes elastic.
Electric Car Demand and Government Incentives
Price drops from ₱2,000,000 to ₱1,750,000; demand rises from 1,500 to 2,000 units. Government tax credit further reduces effective price.
Calculate elasticity for initial drop.
Predict tax credit effect on elasticity.
Graph demand curve and indicate shifts.
Ed=%ΔQ/%ΔP=0.285714/−0.133333=−2.14. or 2.14
Price Elasticity of Demand (PED): −2.14 or 2.14 → Relatively Elastic demand
→ A 1% price drop increases quantity demanded by about 2.14%.
Tax credit lowers the effective price → encourages even higher demand.
May cause both:
Movement along the demand curve (due to lower price).
Rightward shift of the curve (due to higher overall interest in EVs).
Observed demand becomes more elastic (more responsive).
Smartphone Manufacturer Capacity Expansion
Price rises from ₱15,000 to ₱20,000 per unit; quantity supplied increases from 10,000 to 15,000 units. Expanding production capacity requires costly new factories.
Calculate price elasticity of supply.
Predict changes if competitors use flexible production.
Graph the supply curve.
Es=0.40/0.2857=1.40.
Es=1.4>1 → relatively elastic supply over this price range: a 1% rise in price is associated with about a 1.4% rise in quantity supplied.
If competitors adopt flexible production
Flexible production (modular factories, contract manufacturing, spare capacity) lowers marginal barriers to scaling up.
That makes market supply more elastic (flatter supply curve): for the same price rise, the industry supplies more units.
Result: smaller price increases needed to obtain larger quantity increases; greater competitive responsiveness and quicker market adjustment.
Luxury Watch Market and Consumer Preferences
Price rises from ₱250,000 to ₱300,000; demand falls from 800 to 600.
Calculate elasticity for original brand.
Analyze substitute impact.
Graph the demand curve.
Ed=−0.285714/0.181818=−1.57 or 1.57
Ed=−1.57 (absolute value 1.57) → elastic demand: a 1% price increase leads to about a 1.57% drop in quantity demanded for this brand.
Effect of substitutes
Many close substitutes available (other luxury watch brands, smartwatches, premium accessories): demand becomes more elastic — consumers can switch when price rises, so sales drop more sharply.
Strong brand loyalty or unique features (limited editions, resale value, status signaling): demand is less elastic — buyers tolerate higher prices.
The presence of attractive substitutes tends to amplify the observed elasticity (makes the demand curve flatter).
Agricultural Supply and Weather Impact
Wheat supply increases from 2,000 to 2,500 tons when price rises from ₱5,000 to ₱6,500 per ton.
Calculate elasticity ignoring drought.
Discuss external factors’ effects on elasticity.
Plot the supply curve.
Es=0.22222/0.26087=0.85.
Interpretation: Supply is relatively inelastic over this interval. A 1% increase in price raised quantity supplied by 0.85%.
External Factors Affecting Supply Elasticity
Weather: Droughts or floods reduce supply, making it more inelastic.
Time: Short run = less elastic; long run = more elastic as farmers adjust.
Technology: Better tools or seeds increase elasticity.
Inputs & storage: Limited inputs or poor storage lower elasticity.
Government policies: Subsidies or price controls can either raise or lower responsiveness.
Gasoline Demand Amid Price Volatility
Price rises from ₱150 to ₱175 per liter; demand drops from 10,000 to 9,000 liters weekly. Improvements in public transport reduce dependency.
Calculate elasticity ignoring transport. Discuss alternative effect on elasticity.
Evaluate demand elasticity change over time.
Graph demand before and after transport improvements.
Ed=−0.10526/0.15385=−0.68 or 0.68.
Interpretation: Demand is relatively inelastic (|E| ≈ 0.68). A 1% price increase reduces quantity demanded by 0.68%.
How elasticity changes over time (short)
Short run: inelastic — consumers have limited alternatives and habits persist.
Long run: more elastic — people change commuting mode, buy more fuel-efficient cars, or move closer to work.