ECON 103: Price Elasticity of Supply

Vocabulary flashcards covering the definition, calculation, graphical interpretation, and determinants of price elasticity of supply from ECON 103.

Price Elasticity of Supply ($E_s$)

A measure of how responsive quantity supplied is to a change in price, calculated as the percentage change in quantity supplied divided by the percentage change in price ($\frac{\%\Delta Q_s}{\%\Delta P}$).

Supply Curve Slope and Elasticity

The graphical relationship where a flatter supply curve ($S_e$) indicates a more elastic and responsive supply, whereas a steeper supply curve ($S_i$) indicates a more inelastic and less responsive supply for the same price change.

Determinants of Price Elasticity of Supply

The three primary factors that determine supply elasticity: cost of inputs, time, and scope of the market.

Cost of Inputs

The key determinant of supply elasticity, reflecting how easily producers can expand output; supply is more elastic when extra resources can be obtained at low per-unit cost (e.g., roofing nails) and less elastic when producing more incurs much higher per-unit costs (e.g., single-barrel bourbon).

Time Horizon in Supply Elasticity

The determinant stating that supply becomes more elastic over time because producers have more time to adjust production processes to expand output at lower cost, leading to a smaller quantity response in the short run and a much larger response in the long run.

Scope of the Market

A determinant of supply elasticity stating that local supply tends to be more elastic than global supply because a single locality can ship in goods from elsewhere without driving up per-unit costs, whereas expanding global supply requires increasing total worldwide production capacity.

Sign of Price Elasticity of Supply

A value that is always positive because price and quantity supplied move in the same direction.

Midpoint Method for Percentage Change in Quantity Supplied ($\%\Delta Q_s$)

The formula defined as $\frac{Q_{\text{after}} - Q_{\text{before}}}{(Q_{\text{after}} + Q_{\text{before}}) \div 2}$, which computes the change in quantity supplied divided by the average quantity.

Midpoint Method for Percentage Change in Price ($\%\Delta P$)

The formula defined as $\frac{P_{\text{after}} - P_{\text{before}}}{(P_{\text{after}} + P_{\text{before}}) \div 2}$, which computes the change in price divided by the average price.

Elastic Supply

A market condition where $E_s > 1$ and $\text{\%}\Delta Q_s > \text{\%}\Delta P$, indicating that quantity supplied is relatively responsive and changes by a larger percentage than the change in price.

Inelastic Supply

A market condition where $E_s < 1$ and $\text{\%}\Delta Q_s < \text{\%}\Delta P$, indicating that quantity supplied is relatively unresponsive and changes by a smaller percentage than the change in price.

Unit Elastic Supply

A market condition where $E_s = 1$ and $\text{\%}\Delta Q_s = \text{\%}\Delta P$, indicating that a change in price leads to an exactly proportional change in quantity supplied (e.g., a $10\%$ increase in price leads to a $10\%$ increase in quantity supplied).

Elasticity

An economic measure that describes the responsiveness or magnitude of the relationship between price and quantity, rather than merely its direction.