Business Economics (MBA Morning)

Assignment No # (1-5)

Name : Parwaiz Ali Jiskani

Reg. no : 7241

Class : MBA(Morning)

Class Day: Wednesday

(12:00 to 3:00)
Date of submission: Oct. 29, 2008

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 SUBMITED TO:
MR. Asif Qureshi
Elastic Supply :
If there is one percent changes in price the impact of this change on quantity
supplied will be greater than one percent is called Elastic Supply.

 PES > 1
Formula:

 Ignore all negative signs.

 In formula the symbols stands for.

 PES : Price Elasticity of Supply

 ∆ : Delta Stands for “change in”
 ∆Q : Change in Quantity Supply
 ∆P : Change in Price
 Q1 : Initial Quantity Supplied
 Q2 : Current Quantity Supplied
 P1 : Initial Price
 P2 : Current Price

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 Examples for Elastic Supply.
Example no:1
If the price of book increased by $150 to $185 the quantity Supplied by suppliers
will also be increased according to the law of supply.
If the supply increased by more than 1% than the price increased called elastic
supply.
Schedule for Elastic Supply: (BOOK)

Price ($) Quantity (books)

P1 P2 Q1 Q2
150 185 10000 14000

Calculations:

PES = ( Q1-Q2 ) ÷ ( P1-P2 )

(Q1+Q2)/2 (P1+P2)/2

PES = ( 10000-14000 ) ÷ ( 150-185 )

(10000+14000)/2 (150+185)/2

PES = 4000 ÷ 35_

24000/2 335/2

PES = 4000 ÷ 35_

12000 167.5

PES = 0.3333 ÷ 0.2089

PES = 1.59
( Elastic Supply )

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Graph for Elastic Supply

P ric e BOOK
S u p p ly
$185

$150

10000 14000 Q u a n tity

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Example no:2

If the price of Pepsi increased by $30 to $35 the quantity Supplied by suppliers
will also be increased according to the law of supply.
If the supply increased by more than 1% than the price increased called elastic of supply.

Schedule for Elastic Supply: (PEPSI)

Price ($) Quantity (million bottle)

P1 P2 Q1 Q2
30 35 8 10

Calculations:

PES = ( Q1-Q2 ) ÷ ( P1-P2 )

(Q1+Q2)/2 (P1+P2)/2

PES = ( 8-10 ) ÷ ( 30-35 )

(8+10)/2 (30+35)/2

PES = 2 ÷ 5_
18/2 65/2

PES = 2 ÷ 5_
9 32.5

PES = 0.2222 ÷ 0.153846

PES = 1.44
( Elastic Supply )

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Graph for Elastic Supply

P ric e Pepsi
S u p p ly
$35

$30

8 10 Q u a n tity (m illio n )

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Inelastic Supply:
If there is one percent changes in price the impact of this change on quantity
Supplied will be lesser than one percent is called Inelastic Supply.

 PES < 1

Formula:

 Ignore all negative signs.

 In formula the symbols stands for.

 PES : Price Elasticity of Supply

 ∆ : Delta Stands for “change in”
 ∆Q : Change in Quantity Supply
 ∆P : Change in Price
 Q1 : Initial Quantity Supplied
 Q2 : Current Quantity Supplied
 P1 : Initial Price
 P2 : Current Price

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 Examples for Inelastic Supply.
Example no:1
If the price of Mangoes increased by $20 to $30 per Kg the quantity Supplied by
suppliers will also be increased according to the law of supply.
If the “supply increased by less than 1%” than the price increased called inelastic
supply.

Schedule for Inelastic Supply: (Mangoes)

Price ($) Quantity (bags)

P1 P2 Q1 Q2
20 30 5000 6000

Calculations:

PES = ( Q1-Q2 ) ÷ ( P1-P2 )

(Q1+Q2)/2 (P1+P2)/2

PES = ( 5000-6000 ) ÷ ( 20-30 )

(5000+6000)/2 (20+30)/2

PES = 1000 ÷ 10_

11000/2 50/2

PES = 1000 ÷ 5_
5500 25

PES = 0.181818 ÷ 0.4

PES = 0.45
( Inelastic Supply )

Graph For inelastic Supply

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 P ric e M angoes S u p p ly

$30

$20

5000 6000 Q u a n tity

Example no:2

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 In Short Run if the price of Cars increased by $350000 to $425000 the quantity
Supplied by suppliers will also be increased according to the law of supply.
If the supply increased by less than 1% than the price increased called inelastic of
supply.

Schedule for Inelastic Supply: (Suzuki Motors Car)

Price ($) Quantity (thousands)

P1 P2 Q1 Q2
350000 425000 7600 8550

Calculations:

PES = ( Q1-Q2 ) ÷ ( P1-P2 )

(Q1+Q2)/2 (P1+P2)/2

PES = ( 7600-8550 ) ÷ ( 350000+425000 )

(7600+8550)/2 (350000+425000)/2

PES = 950 ÷ 75000_

16150/2 775000/2

PES = 950 ÷ 75000_

8075 387500

PES = 0.11768 ÷ 0.1935

PES = 0.607
( Inelastic Supply )

Graph For inelastic Supply

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 P ric e C a rs S u p p ly

$425000

$350000

7600 8550 Q u a n tity

Unit Elastic Supply.

If there is one percent changes in price the impact of this change on quantity
supplied will be equal to one percent is called Unit Elastic Supply.
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  PES = 1

Formula:

 Ignore all negative signs.

 In formula the symbols stands for.

 PES : Price Elasticity of Supply

 ∆ : Delta Stands for “change in”
 ∆Q : Change in Quantity Supply
 ∆P : Change in Price
 Q1 : Initial Quantity Supplied
 Q2 : Current Quantity Supplied
 P1 : Initial Price
 P2 : Current Price

Examples for Unit Elastic Supply.

Example no:1

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 If the price of Video Games increased by $300 to $330 the quantity Supplied by
suppliers will also be increased according to the law of supply.
If the supply increased by same % as the % increase in price called Unit elastic
supply.
Schedule for Unit Elastic Supply: (Video Games)

Price ($) Quantity (units)

P1 P2 Q1 Q2
300 330 4000 4400

Calculations:

PES = ( Q1-Q2 ) ÷ ( P1-P2 )

(Q1+Q2)/2 (P1+P2)/2

PES = ( 4000-4400 ) ÷ ( 300-330 )

(4000+4400)/2 (300+330)/2

PES = 400 ÷ 35_

8400/2 630/2

PES = 400 ÷ 35_

4200 315

PES = 0.952 ÷ 0.952

PES = 1
(Unit Elastic Supply )

Graph for Unit Elastic Supply

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 P ric e V id e o g a m e s S u p p ly
$330

$300

4000 4400 Q u a n tity

Example no:2

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 If the price of Cigerate increased by $25 to $32.5 per packet the quantity Supplied
by suppliers will also be increased according to the law of supply.
If the supply increased by same % as the % increase in price called Unit elastic
supply.
Schedule for Unit Elastic Supply: (Cigerate)

Price ($) Quantity (dozen box)

P1 P2 Q1 Q2
25 32.5 180 234

Calculations:

PES = ( Q1-Q2 ) ÷ ( P1-P2 )

(Q1+Q2)/2 (P1+P2)/2

PES = ( 180-234 ) ÷ ( 30-32.5 )

(180+234)/2 (30+32.5)/2

PES = 54 ÷ 7.5_
414/2 57.5/2

PES = 2 ÷ 7.5_
207 28.75

PES = 0.26086 ÷ 0.26086

PES = 1
(Unit Elastic Supply )

Graph for Unit Elastic Supply

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 P ric e C ig e r a te S u p p ly

$ 3 2 .5 0

$25

180 234 Q u a n tity (B o x )

Perfectly Elastic Supply:

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 If there is percent change in price impact of the change will be very huge in
quantity Supplied called Perfectly Elastic Supply.

 PES ∞ (infinity)

Formula:

 Ignore all negative signs.

 In formula the symbols stands for.

 PES : Price Elasticity of Supply

 ∆ : Delta Stands for “change in”
 ∆Q : Change in Quantity Supply
 ∆P : Change in Price
 Q1 : Initial Quantity Supplied
 Q2 : Current Quantity Supplied
 P1 : Initial Price
 P2 : Current Price

Examples for Perfectly Elastic Supply.

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Example no:1
In Long Run the price of TV sets increased by $18000 to $20600 the quantity
Supplied by suppliers will also be increased according to the law of supply.
If the “supply increased by Huge Quantity as compare to % change in the price
increased called perfectly elastic supply.

Schedule for Perfectly Elastic Supply: (T-V)

Quantity Quantity (Units)

Quantity
(thousands)P1P2Q1Q21400
014500350015000P2Q1Q21
800018500500012000
Price ($)
Calculations:

PES = ( Q1-Q2 )
÷ ( P1-P2 )

(Q1+Q2)/2 (P1+P2)/2

PES = (3500-
15000) ÷ ( 14000-14500 )

(35000+50000)/2
(14000+14500)/2

PES = 11500
÷ 500_
18500/2
28500/2

PES = 11500 ÷
500_
9250 14250

PES = 1.62162 ÷
0.035

PES = 46.332

( Perfectly
Elastic Supply )
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 Graph for Perfectly Elastic Supply

Perfectly Inelastic Supply:

If there is percentage
change in price impact of the
change on quantity Supplied would
remain same or quantity of supply
remains same called perfectly
inelastic Supply.

PES = 0

Formula:

Ignore all negative signs.

In formula the symbols stands for.

PES : Price Elasticity

of Supply
∆ : Delta Stands
for “change in”
 ∆Q :
Change in
Quantity Supply
 ∆P :
Change in
Price
 Q1 : Initial
Quantity Supplied
 Q2 :
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 Current
Quantity Supplied
 P1 : Initial
Price
 P2 :
Current Price








 Examples for
Perfectly
Inelastic Supply.
 Example no:1
 If the price of
Beach Front Land is
increased by $501700
to $603400 there will
be no change in
supply.
 If the “supply
remain same and % change
in the price increased called
perfectly inelastic supply.


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  Schedule for
Perfectly inelastic
Supply: (Beach
Front Land)

 Price ($)

Calculations:

PES =
( Q1-Q2 ) ÷ ( P1-P2 )

(Q1+Q2)/2
(P1+P2)/2

PES =
( 5000-12000 ) ÷
( 18000-18500 )

(5000+12000)/2
(18000+18500)/2

PES =
7000 ÷ 500_

17000/2
36500/2

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 PES = 7000 ÷
500_
8500 18250

PES = 0.82352 ÷
0.0273

PES =
30.58

( Perfectly
Elastic Supply )

Graph for Perfectly Elastic

Supply

Example no:2

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 In Long Run the price of
Computer sets increased by
$14000 to $15000 the
quantity Supplied by
suppliers will also be
increased according to the
law of supply.
If the “supply increased by
Huge Quantity as compare
to % change in the price
increased called perfectly
elastic supply.

Schedule for Perfectly

Elastic Supply:

Price ($)
P1P1 P2 Q1 Q2
501700 603400 100000 100000

Calculations:

PES = ( Q1-Q2 ) ÷ ( P1-P2 )

(Q1+Q2)/2 (P1+P2)/2

PES = ( 100000-100000 ) ÷ ( 501700-603400 )

(100000+100000)/2 (501700+603400)/2

PES = 0 ÷ 101700_
200000/2 1105100/2

PES = 0 ÷ 101700_

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 100000 552550

PES = 0 ÷ 0.1840

PES = 0
(Perfectly Inelastic Supply)

Graph for Perfectly inelastic Supply

Price
Beach Front Land
Supply

$603400

$501700

0 100000 Q uantity

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Example no:2

If the price of Fuel increased by $105per barrel to $200 per barrel the quantity
Supplied by PSO to the Railways will remain same.
If the “supply remain same and no change in supply called perfectly inelastic
supply.

Schedule for Perfectly Inelastic Supply:

Price ($ per barrel) Quantity (barrel)per day

P1 P2 Q1 Q2
105 200 300 300

Calculations:

PES = ( Q1-Q2 ) ÷ ( P1-P2 )

(Q1+Q2)/2 (P1+P2)/2

PES = (300-300) ÷ ( 105-200 )

(300+300)/2 (105+200)/2

PES = 0 ÷ 95_
600/2 305/2

PES = 0 ÷ 95_
300 152.5

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 PES = 0 ÷ 0.6229

PES = 0
( Perfectly inelastic Supply )

Graph for Perfectly inelastic Supply

P ric e F u e l to S u p p ly
R a ilw a y

$200

$105

0 300 Q u a n t ity (b a rre l)

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