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Price Elasticity of Supply

Price Elasticity of Supply - Price Elasticity of Supply 28...

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Unformatted text preview: Price Elasticity of Supply 28 VIII. Price Elasticity of Supply The price elasticity of supply of a good is a measure of the responsiveness of the quantity of a good supplied to changes in its price, other things being equal. !"#$%&'(#$#)*+,'(',-$./$+0%%)-$./$*$1..2$$'+$*$3#*+0&#$./ ,"#$ &#+%.4+'5#4#++$ ./$ ,"#$ 60*4,',-$ ./$ *$ 1..2$ +0%%)'#2$ ,. D("*41#+$'4$',+$%&'(#7$.,"#&$,"'41+$8#'41$#60*)9 efinition: :#/'4','.4; $$ <+$=$%#&(#4,$.&$%&.%.&,'.4*)$("*41#$'4$>+ $$$$$$$$%#&(#4,$.&$%&.%.&,'.4*)$("*41#$'4$? @4,#&%&#,*,'.4;[email protected]/$ ,"#4$<+$=$ABCDB$=$D9 !"#$'4,#&%&#,*,'.4$./$< $=$D$'+$,"*,$*$EB$'4(&#*+#$'4$? The interpretation of Es = 2 i+s that a 1% increase in P gives 1'5#+$&'+#$,.$*$DB$'4(&#*+#$$'4$60*4,',-$./$>$+0%%)'#2$$.&$* rise to a 2% increase in quantity of Q supplied or a 1% EB$2#(&#*+#$'4$?$1'5#+$&'+#$,.$*$DB$2#(&#*+#$'4$60*4,',-$./ decrease in P gives rise to a 2% decrease in quantity of Q >$+0%%)'#29 supplied. $*42$ 7$ If Es= 2, how much would a 6% increase in P change the @/$<+$$=$D7$".F$30("$F.0)2$*$GB$'4(&#*+#$'4$?$$("*41# quantity of Q supplied. ,"#$60*4,',-$./$>$+0%%)'#29 %ΔQs = Es * %ΔP = 2 * 6% = 12% B >+$=$<+$H$B ?$=$D$H$GB$=$EDB 29 !"#$%#"&'()* +%,,(-./&0"&*/12/3/45/")6/72/3/89 ///////////1:/3/45;<9/")6/7:/3/299 =)&.>.-&')?/@"#%.-* A-/3/9///1.>B.$&#C/=).#"-&'$/+%,,#C A-/3/ ///1.>B.$&#C/A#"-&'$/+%,,#C Determinants* : Determinants 1. Behavior of costs as industry output expands. 22;//D.0"E'(>/(B/$(-&-/"-/')6%-&>C/(%&,%&/.F,")6-; . Time - the longer the time period the more elastic is s:;//G'H./I/&0./#()?.>/&0./&'H./,.>'(6/&0./H(>./.#"-&'$/'upply. -%,,#C; © Bryan L. Boulier, 2010. All rights reserved. ...
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