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Price Elasticity of Supply in Microeconomics

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  • 0:01 What Is Price…
  • 1:04 Elastic Supply
  • 2:11 Inelastic Supply
  • 3:11 Long-Term Elasticity
  • 4:24 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Price is an importance concept in economics, as it is the meeting point of supply and demand. This lesson explains some of the issues with elasticity of price with respect to supply, along with some real-world examples.

What is Price Elasticity of Supply?

Have you ever tried to find a parking spot in a crowded parking lot? Next to impossible, isn't it? Often, you find yourself getting frustrated at everyone, from the couple that walks across aisles so you can't follow them to their spot, to the other cars that always seem to get just the right spot, to the company for not supplying enough spots in the first place. In fact, I bet sometimes you'd even be willing to pay for an otherwise free parking spot.

Supply of parking spots in a given lot is a great way of examining the concept of price elasticity of supply. Price elasticity of supply is a measure of how supply responds to price. In fact, it can be calculated by dividing the percentage change in amount supplied by the percentage change in price. As you can imagine, this is a useful tool for microeconomists, because it helps them determine whether or not it is advantageous, or even possible, for businesses to undergo certain actions.

Elastic Supply

Parking spots are often quite available. Say you were going to the mall on Tuesday morning in the middle of summer - chances are you'd have your pick of spots. In fact, if someone suddenly told you that you had to pay more for a spot, you'd probably get angry. There are plenty of spots around, and you don't see a point to paying more for them. This would be even more true if suddenly the mall added a new parking garage, increasing the supply. This means that parking spots while the mall is practically deserted are an elastic supply. Elastic supplies are those in which the percentage change in quantity supplied is greater than the percentage change in price.

Let's use another example, just to make sure you get it. When you're at the mall, you walk into your favorite store and see shoes on sale. You notice that the store is running a special - buy one, get another pair half off. This is a classic case of an elastic supply - the company has increased the supply by 100%, but is only increasing price (effectively) by 33% total.

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