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econ notes

# econ notes - maximum attainable output from those inputs...

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Feb 15, 2010 Price of elasticity of supply E= percentage change in quantity supplied/ percentage change in price Measures the sensitivity of changes in quantity supplied to changes in price of a good or service. Price elasticity of supply is a positive number that can range from zero to infinity Examples 1. Suppose the price of elasticity of supply of bread is 2 - A 10 percent decline in the price of bread will therefore result in a 20 percent reduction in quantity supplied because - -20%/-10%= - Taxes can affect incentives to buy and sell goods and services. Using Elasticity to Analyze the Effect of Taxes on Prices An excise tax is a tax on the production or sale of a particular product such as gasoline TEST 2 Feb 17, 2010 The production function Describes the relationship between any given combination of inputs and the

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Unformatted text preview: maximum attainable output from those inputs given current technology • We will assume that there are only wo inputs, labor (L) and capital (K) • Q= f(L,K) The Period of Production • Short run: A period of production during which some inputs cannot be varied • Long run: A period of production long enough for all inputs to be varied • There is more flexibility in the long run than in the shot run to vary production • Assume labor is a variable input and that capital is a fixed input in the short run The law of diminishing marginal returns The marginal product of a variable input eventually declines and approaches zero as a more is used in the short run. Labor productivity increases at first then decreases This law implies...
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econ notes - maximum attainable output from those inputs...

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