Class Notes - 9-26-07

Class Notes - 9-26-07 - Microeconomics Class Notes -...

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Microeconomics – Class Notes - 9/26/07 Inelastic demand – Consumers pay more because they are still going to purchase the good in question, regardless of the small change in price. II. Price Elasticity of Supply - Response of Quantity Supplied to change in Price A. Calculation: Elasticity of Supply a. (Es) = (% change in Quantity Supply) / (% change in Price) * (Es) is always greater than or equal to 0 (always positive) - Due to Law of Supply: - An increase in price, there will be increase in quantity supplied - A decrease in price will result in decrease in quantity supplied B. Uses a. Predict how the quantity supplied responds to a change in Demand b. Compare potential policy effects C. Ranges of Elasticity of Supply a. If elasticity of supply > 1 (therefore the curve is elastic) o (% change in quantity supplied) > (% change in price) So Quantity supplied is very responsive to changes in Price b. If elasticity of supply is greater than 0 and less than 1 (you have an INELASTIC supply curve)
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Class Notes - 9-26-07 - Microeconomics Class Notes -...

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