This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY]. 1 1 Price Elasticity of Supply 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen September 12, 2007 Lecture 4 Price Elasticity of Supply; Consumer Preferences Outline 1. Chap 2: Elasticity- Price Elasticity of Supply 2. Chap 3: Consumer Behavior- Consumer Preferences 1 Price Elasticity of Supply Price elasticity of supply. The percentage change in quantity supplied re- sulting from one percentage change in price. dQ S E P S = Q S = P dQ S . dP Q S dP P In the short run, if price increases, firms will want to produce more but cannot hire workers and buy machines immediately, thus the supply is less elastic. In contrast, supply is more elastic in the long run. Example (Example in Elasticities of Demand) . Assume the quantity demanded is Q D = 14 3 P + I + 2 P S P C . P- Price I- Income P S- Price of substitute P C- Price of complement Calculate E P D , E I , E QP S and E QP C when P = 1, I = 10, P S = 2 and P C = 1. Solution: Given the values of variables, the quantity demanded is: Q D = 14 3 1 + 10 + 2 2 1 = 24 . Cite as: Chia-Hui Chen, course materials for 14.01 Principles...
View Full Document