Principles of Economics- Mankiw (5th) 101

Principles of Economics- Mankiw (5th) 101 - CHAPTER 5 E L A...

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CHAPTER 5 ELASTICITY AND ITS APPLICATION 105 responds substantially to changes in the price. Supply is said to be inelastic if the quantity supplied responds only slightly to changes in the price. The price elasticity of supply depends on the flexibility of sellers to change the amount of the good they produce. For example, beachfront land has an inelastic supply because it is almost impossible to produce more of it. By contrast, manu- factured goods, such as books, cars, and televisions, have elastic supplies because the firms that produce them can run their factories longer in response to a higher price. In most markets, a key determinant of the price elasticity of supply is the time period being considered. Supply is usually more elastic in the long run than in the short run. Over short periods of time, firms cannot easily change the size of their factories to make more or less of a good. Thus, in the short run, the quantity sup- plied is not very responsive to the price. By contrast, over longer periods, firms can
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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