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Unformatted text preview: supply. 6 lasticity and Volatility Elasticity and Volatility • When supply and demand are relatively inelastic, prices tend be volatile but the quantity bought and sold in the market to be volatile, but the quantity bought and sold in the market is relatively stable. • Example: California energy market. P S Q D 7 lasticity and Volatility Elasticity and Volatility • When supply and demand are relatively elastic, the quantity pp y y , q y bought and sold in the market is relatively volatile, but prices tend to be stable. P S D Q 8 Elasticity is also Important for Understanding . . . • how taxes affect both households and firms. • whether some taxes are more efficient than thers others. • the welfare implications of price controls. • whether minimum wage laws are likely to have a large effect on employment levels. g p y • the supply decisions of monopolists. 9...
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- Fall '08
- Price Elasticity, Herb Newhouse