Micro: Unit 1 CH 6 PRICE ELASTICITY OF SUPPLY

Elasticity

Price Elasticity of Supply is always _______ (similar to Demand)

positive

Equation for Price Elasticity of supply

E_s = % change in quantity supplied / % change in price

Midpoint Formula for Supply Elasticity

E_s = [ Change in Q_s / (Sum of Quantities /2) ] / [Change in Price / (Sum of prices / 2 )]

Two Extreme Cases of Elasticity of Supply

Perfectly inelastic and perfectly elastic

When E_s = 0, the supply curve is (vertical, no change in supply)

perfectly inelastic

Where do you see perfectly inelastic supply?

Stadiums (limited number of seats) and artwork

If E_s = infinity, the supply curve is… (horizontal, no change in price)

Perfectly Elastic

Supply curve is ______ if a rise in price increases the quantity supplied a lot

elastic

Supply curve is ________ if a rise in price increases the quantity supplied just a little

inelastic

If Quantity Supplied is > 1, then it is

elastic

If Quantity Supplied is < 1, then it is

inelastic

If Quantity Supplied is = 1, then it is

unit elastic

T/F: You can only determine that the flatter curve is elastic if the curves intersect

True

If the curve is flatter, it is more ______

elastic

Factors that Determine Price Elasticity of Supply

Availability in inputs and time

If an increase in production is very expensive (inputs are not easily available or cannot be shifted), then the supply will be _______

Specialized investments

inelastic

If production can be increased cheaply, then the supply will be ______

elastic, many suppliers can supply it

Price elasticity of supply ________ as producers have more time to respond to price changes

increases, becomes more elastic

Long-run price elasticity of supply is usually ________ than than short-run elasticity

higher