05_Understanding Price Elasticity of Supply (micro)

Price Elasticity of Supply

Measures the responsiveness of quantity supplied to changes in price

Perfectly Inelastic Supply

The quantity supplied is fixed and does not change in response to price changes

Elastic Supply

The quantity supplied changes by a larger percentage than the price change

Producer Surplus

The difference between the price received by a seller and their opportunity cost

Consumer Surplus

The difference between what a buyer is willing to pay and what they actually pay

Total Surplus

The sum of consumer surplus and producer surplus

Efficient Allocation of Resources

Occurs when total surplus is maximized and no potential gains from trade remain

Market Equilibrium

The point where the quantity buyers are willing to buy equals the quantity sellers are willing to sell

Tendering Process

A competitive process where producers compete to provide goods or services to buyers

Opportunity Cost

The value of the next best alternative given up when choosing to produce a good or service