The law of supply states that a higher price of a good leads to an increase in its supply.

Supply elasticity () - an indicator of the degree of sensitivity of supply to price changes, which reflects the measure of change in the value of the supply of a good, depending on changes in its price.

The offer is called inelastic if the quantity supplied does not change significantly when the price changes. The offer for a product is called elastic if a change in price results in a smaller change in quantity supplied.

Elasticity coefficient price offers we show the relative change in the volume of supply under the influence of a price change of 1%.

Elasticity coefficient supply is always a positive value, since according to the law of supply, there is always a directly proportional relationship between the price and the supply volume.

Elasticity linear function sentence changes from 0 to ∞.

There are five types of supply elasticity:

1) Perfectly inelastic supply - price change does not affect the supply volume (). This is typical of a momentary period when all factors of production are constant and there is no possibility to change the quantity supplied. During this period, the supply curve is represented as - Q S =a.

2) Inelastic supply - price change leads to a slight change in sales volume (). Inelastic supply occurs in short term when some of the factors of production can be changed. Under these conditions, the manufacturer can adapt within certain limits to price changes and slightly increase the volume. During this period, the supply curve is represented by the equation: Q S \u003d a + P (b=1).

3) Single elastic supply - a change in price leads to the same increase in the volume of supply ().

4) Elastic supply - a change in price by 1% leads to a significant increase in the volume of supply (). Manifested Q S =a +P?b.

5) Infinitely elastic supply - the offer can change indefinitely with a slight change in price ().

Distinguish between point and arc elasticity of supply.

With small price and volume changes sentences or in the case of calculating elasticity in a particular situation (point), the formula of point elasticity is used, and in case of significant - arc elasticity.

Arc elasticity- this is indicator of the average response of the volume of supply to a change in the price of a product over a certain interval S 1 S 2(Fig. 28). It is determined taking into account the midpoint.

Point elasticity characterizes a linear relationship between price and supply.

The following formulas are used to calculate it:

or, taking the derivative of the offer function:

where is the derivative of the supply function with respect to price,

P1- price at a specific point,

Q1- the volume of supply at a particular point.

Figure 28 - Graphical interpretation of the arc elasticity of the proposal

By analogy with the point elasticity of demand point elasticity of supply can be determined graphically by drawing a tangent to the supply curve at the desired point (Fig. 29). The slope of the supply curve at any point is determined by the value of the tangent of the angle of the tangent to the axis OH and is constant throughout. It is identified as a price coefficient b (the supply curve is given by a linear function Q=a+b?P), which is the reciprocal of the slope of the supply curve:

.

Therefore, the point elasticity of a linear function can be expressed as:

Figure 29 - Graphical interpretation of point elasticity

The elasticity of supply depends on many factors:

1) from the amount of costs: if the expansion of the output of a good is associated with an increase in the cost of production, then the elasticity will be low, the producer will increase output only in the event of a significant increase in the price of this good. Therefore, a small increase in the volume of supply will correspond to significant changes in the price of a product, and this is characteristic of an inelastic supply;

2) on the type of goods and services offered for sale: those goods and services whose production technologies can change rapidly without significant additional investment have a more elastic supply than goods whose production technology and output cannot change rapidly;

3) from the presence of unloaded production capacities - a firm with a larger amount of unloaded production capacity has a more elastic supply. Growing demand can be quickly met by increasing the degree of their utilization;

4) from availability free labor force;

5) from speed overflow capital from one industry to another;

6) from the possibility long-term storage of manufactured products- in the case of long-term storage of products, the firm can increase the volume of products offered at the expense of accumulated stocks and the offer will be more elastic in terms of price;

7) from the length of the period under review : supply elasticity increases as the period under consideration increases (Fig. 30).

Assume Demand increased by some commodity (Fig. 30a). However, the supply of this product cannot rise sharply, since enterprises cannot immediately respond to increased demand. In this case, the supply curve S represents a vertical line with zero elasticity (). As a result sharp growth demand curve D shifts to the right to position D1, and since the supply has remained unchanged, this will only cause the price to rise to R 1 . Thus, the situation of instantaneous equilibrium will be characterized only by a sharp increase in price.

AT conditions of short-run equilibrium (Fig. 30b) the number of enterprises operating in this market does not change, but the supply increases slightly. This is explained by the fact that enterprises operating in this market are gradually adapting to increased demand and are beginning to use the available resources more intensively. production capacity. Curve S1 becomes slightly inclined and the elasticity ranges from 0 to 1 (). As a result, the equilibrium volume slightly increases to Q2, and the price is slightly reduced to R 2 .

Figure 30 - Change in the elasticity of supply

In conditions of long-term equilibrium(Fig. 30 c) the supply fully adapts to the changed demand. High prices allowed the creation of new capacities, new firms appeared in the industry, attracted by excess profits. As a result of this, in conditions of long-term equilibrium, the volume of supply increased. Curve S2 became more inclined and elasticity increased. All this led to a decrease equilibrium price up to R 3 and increase the equilibrium volume to Q3. Thus, the elasticity of supply changes under the influence of technological progress, changes in the qualitative and quantitative composition of the resources used in the production of a particular product, which leads to a decrease in the value of elasticity of supply.

Supply elasticity- the degree of change in the quantity of goods and services offered in response to changes in their price. The process of increasing the elasticity of supply in the long-term and short-term periods is revealed through the concepts of instantaneous, short-term and long-term equilibrium.

Supply elasticity coefficient- a numerical indicator reflecting the degree of change in the quantity of goods and services offered in response to changes in their price.

The elasticity of supply depends on:

1.features production process(allows the manufacturer to expand the production of goods with an increase in the price of it or switch to the production of another product with a decrease in prices);

2. time factor (the manufacturer is not able to quickly respond to price changes in the market);

3. It also depends on the (in)ability of this product for long-term storage.

23. Distribution of the tax burden depending on the elasticity of supply and demand. Consider distribution of the tax burden with elastic demand for products

On fig. Figure 6 shows how the price and volume of sales will change after the introduction of the tax.

Demand chart D in fig. 6, a shows that it has high elasticity, and in Fig. 6, b- relatively inelastic. Offer Schedule S 0 - offer before the introduction of the tax. Respectively R 0 and Q 0 - equilibrium price and output before the introduction of the tax.

Rice. 6. The distribution of the tax burden under elastic ( a) and inelastic ( b) demand: D- demand; S 0, S

What happened when the government introduced the tax? The supply curve has moved up to the left by the amount of the tax. A new equilibrium situation has arisen Q 1 and R 1.

Thus, the price of the goods will be increased by the manufacturer. But how much? Manufacturer under conditions market economy can increase the price by the amount of the tax (although this was often observed in Russia in a transitional economy), set it above the equilibrium, since in a competitive environment it will be forced out of the market. The only thing he can do is raise the price to the equilibrium level.

If demand is elastic, the producer's losses will be higher, the burden of the tax will fall mainly on him. On fig. 6, a the selected rectangle shows the amount of the tax, its part below the dotted line is the producer's loss from the tax. In addition, the manufacturer will be forced to reduce production to Q 1, losing part of the buyers of their products due to the higher price for it.

If demand is inelastic, the tax burden will fall primarily on the consumer. In addition, the absolute tax rate will also be higher if demand is inelastic. That is why the state imposes excise and other indirect taxes on goods, the demand for which is inelastic (cigarettes, alcoholic beverages, etc.).

Note the shaded triangles in Fig. 6. They outline the products that would be produced and purchased if the government had not imposed a tax. These are those consumers who want but cannot buy the product, and those producers who want but cannot produce it. The discrepancy between desires and opportunities is a direct consequence of the established tax and represents a loss for society. Moreover, this loss will be the higher, the higher the elasticity of demand for this product.

Now consider dependence of the distribution of the tax burden on the elasticity of supply (we assume that the elasticity of demand is constant). Rice. 7 illustrates the situation before and after the introduction of the tax.

Rice. 7. The distribution of the tax burden under elastic ( a) and inelastic ( b) offer: D- demand; S oh, S 1, - proposal before and after the introduction of the tax.

With elastic supply, the tax burden will fall mainly on the consumer, the price increase and the reduction in production will be significant, the amount of tax will be relatively less than with inelastic supply, and society's losses will be higher. With inelastic supply, the opposite is true.

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8.6 Supply elasticity

We have already met with the elasticity of demand in the previous chapter. The elasticity of supply is fundamentally different from the elasticity of demand.

Recall basic definition Elasticity: This is the ratio of the percentage change in one quantity to the percentage change in another quantity.

In the case of supply elasticity, the basic elasticity formula takes the form

For small changes (usually less than 10%), you can get by with point elasticity, and for large changes (more than 10%), it is more correct to use arc

Note that since supply is a function of many factors (non-price supply factors), it is possible to calculate supply elasticity for any factor. For example, you can calculate the elasticity of supply with respect to the price of resources (for example, the elasticity of supply with respect to wages). The principles for calculating elasticity in these cases will be the same as for price elasticity. Accordingly, all formulas will be similar to the price elasticity formulas, it is only necessary to replace the “price” factor with a corresponding other factor, for example, “employee wages”.

All elasticity formulas are a consequence of the most general formula:

Elasticity of supply by factor =

Price elasticity of supply

Price elasticity of supply =

Price elasticity of supply measures how the quantity supplied responds to changes in price. As we know, the law of supply states that the quantity supplied and the price change in the same direction (let's not forget that there is an exception to the law of supply). Therefore, while maintaining the law of supply. price elasticity of supply is non-negative.
e P Q ≥ 0

Supply is price elastic when e P Q ≥ 1

In this case ≥ 1, i.e. ΔQ% ≥ ΔP%. The quantity supplied changes more than the price (as a percentage). That is, the quantity supplied is highly responsive to price changes.

Supply is price elastic when e P Q ≤ 1

In this case ≤ 1, i.e. ΔQ% ≤ ΔP%. The quantity supplied changes less than the price (as a percentage). That is, the quantity supplied is weakly responsive to price changes.

Supply has unit price elasticity when e P Q = 1 In this case = 1, i.e. ΔQ% = ΔP%. The amount of supply changes in the same way as the price (as a percentage).

8.6.1. Extreme cases of price elasticity of supply

Let's consider two extreme cases:

8.6.2. Supply function with constant elasticity

Elasticity of the offer of the form Q = a*Pn equals e=n at any point

Let's prove it:

Since we need to prove that the elasticity is equal to (-n) at any point in the sentence, we will use the point elasticity formula.

Since we are given a smooth function from which we can take a derivative, we use the elasticity formula with derivative

That is, for a sentence of the form Q = a*Pn point elasticity at any point is equal to the degree P.

(we observed the same rule for demand of the form )

8.6.3. Elasticity of a linear supply function

The linear supply function can be given by the equation: Q = a + bP, where a is responsible for the intersection with the Q axis, and b- for the angle of inclination of the straight line.

Let's use the point elasticity formula to calculate the elasticity at each point of this function.

Let's find the points when the offer is inelastic, that is, when e P Q ≤ 1

a> 0. That is, when a linear supply starts from the Q axis, it is inelastic at any point.

Let's find the points when the offer is elastic, that is, when e P Q ≥ 1

Solving this equation, we get a < 0. То есть, когда линейное предложение стартует из оси P, оно является неэластичным в любой точке.

It is easy to check that when a= 0, that is, when the linear supply starts from the origin, the point elasticity is 1 at any point.

We summarize the obtained results in the graph:

Let us consider in more detail what determines the elasticity of the supply of goods.

Supply elasticity factors

As defined earlier, price elasticity of supply measures how strongly the quantity supplied responds to changes in price. In other words, how much will sellers increase their willingness to sell a given good when its price rises (or how much they are willing to reduce sales of a given good when its price falls). This reaction of the seller to the price may depend on the following factors:

1. The uniqueness of the resources available to the seller.
   The more unique the resources, the less the possibility of their alternative use. The firm with these resources is forced to produce the good and therefore will not react strongly to changes in the price of the good. The more unique the resources available to the firm, the less price elastic the supply.
2. Time period
   The more time a manufacturer has to make a decision about the production and sale of a given product, the higher the price elasticity of supply. In the longer term, producers have the opportunity to look for other ways to use their resources. For example, when apple prices fall, producers in the short run can no longer respond to this by reducing the supply, since apples have already been grown. In the longer term, however, growers will consider using the available land to grow other fruits, such as pears, or even to build cottages on the land. That is, in a longer period, supply will be more responsive to price changes.

Supply elasticity characterizes the reaction of the supply of a product in response to a change in the factors determining it.

Coefficient of price elasticity of supply (E p S) shows the percentage change in the supply of goods as a result of a change in the price of this product by 1%.

Price elasticity of supply is calculated similarly to price elasticity of demand. However, the price elasticity of supply is always positive.

If E p S< 1, предложение товара является inelastic , if E p S > 1, - elastic , if E P S = 1, the sentence has unit elasticity . If E p S = 0, the sentence absolutely inelastic , if E p S = ¥ - absolutely elastic .

The most important factor influencing the elasticity of supply is the time period available to producers to respond to a change in the price of a product. The offer will be more elastic the longer the time period.

When analyzing the elasticity of supply, there are instantaneous, short and long-term market periods.

Instant Period- the period of time during which all factors of production are constant.

The instantaneous period is so short that producers do not have time to respond to changes in demand and prices. Supply curve in the instantaneous period (S m) absolutely inelastic(E p S \u003d 0) (Fig. 1.19).

Rice. 1.19. Supply curves in the instant, short run, and long run

short term- a period of time during which some factors of production are constant, others are variable.

In the short run, the production capacities of enterprises remain unchanged. However, producers have enough time to change the intensity of the use of production capacities. The supply curve in the short run (S s) has some positive slope (E p S< 1).

Long term- the period of time during which all factors of production are variable.

The long-term period is long enough for producers to have time to redistribute production resources in accordance with the requirements of the changed situation. The supply curve in the long run (S l) has a more gentle slope than in the short run (E p S > 1).

Let us determine how the equilibrium price and volume will change as a result of an increase in demand for products in the instant, short-term, and long-term periods (Fig. 1.19). With an increase in demand in the instantaneous period, there will be a sharp increase in the equilibrium price at a constant equilibrium volume. Then, in the short run, the equilibrium price will decrease somewhat, and the equilibrium volume will increase slightly. In the long run, the equilibrium price will fall significantly and the equilibrium quantity will increase significantly.

test questions

1. What is supply and demand?

2. Formulate the law of demand.

3. What are the names of goods that have the same purpose?

4. What do the supply and demand curves show?

5. Name the condition of market equilibrium.

6. What is the situation on the market if set price exceeds the equilibrium price?

7. At what value of the elasticity coefficient is demand inelastic in price?

8. What is the value of the income elasticity of demand for normal goods and low quality goods?

9. At what value of the price elasticity of demand does the seller's revenue decrease as the price rises?

10. Define a stable market equilibrium.

Price elasticity of supply is an indicator of the degree of sensitivity, the response of supply to a change in the price of a product. It is calculated by the formula:

Es = (percentage change in quantity supplied)/(percentage change in price)

The method of calculating the elasticity of supply is the same as that of the elasticity of demand, with the only difference being that the elasticity of supply is always positive, because the supply curve has an "ascending" character. Therefore, there is no need to conditionally change the sign of the elasticity of supply. The positive elasticity of supply is due to the fact that a higher price stimulates producers to increase output.

The main factor in the elasticity of supply is time, since it allows producers to respond to changes in the price of goods.

There are three time periods:

• current period - a period of time during which producers cannot adapt to changes in the price level;
• short period - a period of time during which producers do not have time to fully adapt to changes in the price level;
• long period - a period of time long enough for producers to fully adjust to price changes.

There are the following forms of elasticity of supply:

• elastic supply - the supply changes by a greater percentage than the price when the elasticity is greater than one (Es > 1). This form of supply elasticity is characteristic of the long run;
• inelastic supply - the quantity supplied changes by a smaller percentage than the price when the elasticity is less than one (Es
• absolutely (perfectly) elastic supply takes place when the supply value changes infinitely with a small change in price (Es = ~). This form of elasticity of supply is characteristic of a long period, and the supply curve is strictly horizontal;
• absolutely inelastic supply occurs when the supply is equal to zero (E = 0), i.e., the supply does not change at all when the price changes. This form is characteristic of the current period, and the supply curve is strictly vertical.

Elastic and inelastic supply at a price are illustrated in Fig. 17.1.

The concept of "elastic supply" is applicable to such variables as the interest rate, the level wages, prices for raw materials and semi-finished products used in the production of the desired good.

Rice. 17.1. Price elasticity of supply: a) elastic supply; b) inelastic supply

It should be noted that for most industrial goods, the elasticity of supply with respect to the prices of raw materials is negative, because an increase in the price of raw materials leads to an increase in the costs of the firm, which, with other equal conditions causes a reduction in output.

The elasticity of supply depends on many factors:

• long-term storage capabilities and storage costs. Item that cannot be stored long time or its storage is expensive, has a low elasticity of supply;
• specifics of the production process. In the case when the producer of a good can either increase its output with an increase in price, or produce another product with a decrease in price, the supply of this product will be elastic;
• time factor. The manufacturer cannot respond quickly to price changes because it takes a known time to hire additional workers, the purchase of means of production (when it is necessary to increase output), or to reduce part of the workers, to make payments with a bank loan (when it is necessary to reduce output). In the short run, supply can be increased by growth in demand (price) only through more intensive use of existing production capacities. However, this intensity can increase market supply only by a relatively small amount. Therefore, in the short run, supply is inelastic with respect to price. In the long run, entrepreneurs can increase their productive capacity through the expansion of existing facilities and the construction of new enterprises by firms. Thus, in the long run, the price elasticity of supply is quite significant;
• prices of other goods, including resources. In this case, we are talking about cross elasticity of supply;
• the degree of the achieved use of resources: labor, material, natural. If these resources are not available, then the supply response to elasticity is very small.

G.C. Vechkanov, G.R. Bechkanova