ELASTICITY OF SUPPLY

SUPPLY

Individuals control the factors

of production inputs, or
resources, necessary to
produce goods.

Individuals supply factors of

production to intermediaries or
firms.

The Law of Supply

There is a direct relationship
between price and quantity
supplied.

Quantity supplied rises

as price raises, other
things constant.
Quantity supplied falls
as price falls, other
things constant.

The law of supply is accounted

for by two factors:
When prices rise, firms
substitute production of
one good for another.
Assuming firms costs are
constant, a higher price
means higher profits.
ELASTICITY
The responsiveness of supply
or demand to the change in
price
ELASTICITY OF SUPPLY
The responsiveness of the
suppliers to the change in
price
Perfectly Inelastic- 0
Perfectly Elastic- Infinity
**Things to remember
1) Kapag tinanong kung ano yung
Price Elasticity, yung sagot is
yung 3 types (Elastic, Inelastic
or Unitary)
2) Kapag naman sinabing FIXED
price, dalawa lang ang
pwedeng maging sagot
(Perfectly Elastic or Perfectly
Inelastic).
3) Kapag Income elasticity,
NORMAL good (positive) or
INFERIOR good (negative).
4) Kapag Cross Price Elasticity,
SUBSTITUTE (positive) or
COMPLEMENT (negative).
INFLATION
Inflation
o a sustained rise in the average
price level over a period of
years.
o an increase in the general
level of prices in an economy
that is sustained over a period
of time
o when demand is more than
the supply that may lead to
inflation
Hyperinflation
Prices rise very fast at double
or triple digit rate.
Also called Runway or
Galloping Inflations
CAUSES OF INFLATION
1. Cost-push
- When cost of production
increases the price level
automatically increases.
- Increase in the production
costs of firms
- Income wages, purchase
of raw materials and
machineries and the
desire to have more
profits
2. Demand-pull
- Demand for goods and
services is greater than what
the economy produce
- Desire to buy products and
services is more than the
available supply in the market
- Excess demand pushes up
prices
PEOPLE WHO BENEFIT FROM
INFLATION
1. Debtors/Borrowers particularly if
interest rates of loans are lower than
the inflation.
2. Businesses that can raise prices
higher than their cost of production
- people without fixed income
3. Speculators
- Who are inclined to buy product
with unstable prices and expects
that their prices can increase rapidly
and easily
PEOPLE WHO ARE HURT FROM
INFLATION
1. Creditors individuals who gives
loans
- the real value of the amount they
lend falls when there is higher
inflation
2. People with fixed income
- Workers and employees who
receive the same income suffer
when price increases.
3. Individuals who save
- Money saved in banks depreciates
in value due to the low interest rate
of the bank