Lec07 - Price Elasticity of Supply u u u u price elasticity...

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1 Price Elasticity of Supply u price elasticity of supply e s u measure of sensitivity of quantity supplied to price u more elastic means more sensitive u % D Q u mid-point formula, average of p and q u u elastic e s > 1 ; % D Q > % D P u inelastic e s < 1 ; % D Q < % D P u unit elastic e s = 1 ; % D Q = % D P 2 / ) P P ( ) P P ( 2 / ) Q Q ( ) Q Q ( P ) P P ( Q ) Q Q ( 2 1 1 2 2 1 1 2 1 2 1 2 + - + - = - - % % D D Q P = u relatively elastic or relatively inelastic supply Price Elasticity of Supply Supply not very sensitive to price Supply very sensitive to price D S 2 Quantity Price (per unit) S 1 D P D Q 1 D Q 2 Q 1 > Q 2 relatively inelastic relatively elastic Price Elasticity of Supply u extreme cases u perfectly inelastic S Price (per unit) Quantity Price (per unit) S u perfectly elastic
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2 Determinants of Elasticity u less elastic u more elastic u production limited u firms able to increase inputs in production u short time frame u long time frame S 2 relatively (perfectly) inelastic Price Elasticity of Supply u tells effect of demand shift u larger effect on
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This note was uploaded on 10/10/2009 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.

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Lec07 - Price Elasticity of Supply u u u u price elasticity...

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