ECN607 – Lectureaid_3.2

ECN607 – Lectureaid_3.2 - ECN607 Managerial...

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ECN607 – Managerial Economics Study Aid: lecture 3.2 Elasticity of Supply The elasticity of supply refers to the responsiveness of the amount supplied of a product to a change in its price. Price elasticity of supply is defined as the percentage change in quantity supplied divided by the percentage change in price. If a one percent rise in price causes more than a one percent increase in amount supplied, supply is elastic. The most extreme elastic supply is called perfectly elastic supply – the slightest drop in price results in amount supplied to drop to zero. If a one percent rise in price causes a less than one percent rise in the amount supplied, then supply is inelastic. The most extreme inelastic supply is called perfectly inelastic supply – regardless of the price, amount supplied remains constant. If the percentage change in the amount supplied is just equal to the percentage change in price, then supply is unit-elastic. The longer the time for adjustment, the more price-elastic is the supply curve. The longer the time permitted for adjustment, the more firms will be able to figure out ways to raise or lower output in an industry. The longer the time allowed for adjustment, the more resources that can flow into (out of) an industry via expansion (contraction) of existing businesses. Utility Theory
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This note was uploaded on 08/16/2010 for the course BUS ECON607 taught by Professor Tbd during the Spring '10 term at Grand Canyon.

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ECN607 – Lectureaid_3.2 - ECN607 Managerial...

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