APPLIED ECONOMICS

Chapter 2
REVIEW OF
MARKET ANALYSIS
If you are going to put up a business, what product or
service are you willing to offer?

Why did you choose that product?

Specific Objectives

At the end of the lesson, you are expected to:

1. Define supply
2. Explain the law of supply
3. Determine each price elasticity of supply by using the slope
4. Show importance of the concept in real life.
SUPPLY
Slide Title
Refers to the willingness of sellers to
• Make Effectiveproduce
Presentations
and sell a good at various
• Using Awesome Backgroundspossible prices.
• Engage your
Pt. Audience
Price Quantity
• Capture AAudience20Attention
100
B 40 200
C 60 300
D 80 400
E 100 500
LAW OF SUPPLY

As price of a particular good increases,

the quantity supplied or the amount that
producers would be willing to sell also
increases, considering all factors are
constant.
Getting the Slope of the Supply Curve

The formula for the slope of

𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃 𝑃2 − 𝑃1
𝑆= 𝑜𝑟
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄 𝑄2 − 𝑄1

where P1 is the initial price and Q1 is the initial

quantity of the product, and P2 is the final price and
Q2 is the final quantity of the product
 Given the figure as an example, let us try to
get the slope of the supply.
Let us use points A and B:
40 −20
Slope of D =
200 −100
20
=
100
= 0.2
 Price Elasticity of Supply

it determines whether the supply curve is steep or

flat.

% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑

Ep =
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒

𝑄𝑠2 −𝑠
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓𝑄𝑠
Ep = 𝑃2 −𝑃1
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓𝑃
1. Unitary Elastic Supply Curve

% Change in Price = % Change in Quantity

Ep = 1

Quantity Price
0 0
1 1
2 2
3 3
4 4
5 5
2. Relatively Inelastic Supply Curve

% Change in Price > % Change in Quantity

Ep < 1

Quantity Price
0 0
1 10
3 20
7 40
12 80
18 160
3. Relatively Elastic Supply Curve

% Change in Price < % Change in Quantity

Ep > 1

Quantity Price
0 0
2 1
4 2
8 3
16 4
32 5
4. Perfectly Elastic Supply Curve

Slope = infinity

Quantity Price
0 5
2 5
4 5
6 5
8 5
10 5
5. Perfectly Inelastic Supply Curve

Slope = 0

Quantity Price
3 10
3 8
3 6
3 4
3 2
3 0
Find the slope and determine the price
elasticity of demand.

Quantity Price Quantity Price

0 7 4 0
3 7 8 2
6 7 12 4
9 7 16 6
12 7 20 8
15 7 24 10