Econ1-Fall2010-04c-Elasticity-handout

Econ1-Fall2010-04c-Elasticity-handout - supply. 6 lasticity...

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Economics 1 rinciples of Microeconomics Principles of Microeconomics 4. Elasticity (C) Fall 2010 Herb Newhouse 1 eadings Readings h 4: Elasticity (p 12 18) Ch 4: Elasticity (p 112 118) Price Elasticity of Supply eterminants of Supply Elasticity Determinants of Supply Elasticity 2 utline Outline rice elasticity of supply Price elasticity of supply. Determinants of the price elasticity of supply. Elasticity and volatility. Some other areas in which elasticity is important. 3 he Price Elasticity of Supply The Price Elasticity of Supply price in Δ % supplied quantity in Δ % s ε 0 1 2 3 4
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treme Cases Extreme Cases P S P S Q Q 5 eterminants of the Elasticity of Supply Determinants of the Elasticity of Supply . lexibility of inputs obility of inputs bility 1. Flexibility of inputs , mobility of inputs , ability to produce substitute inputs : the easier it is to find or make substitute inputs, the higher is the elasticity of supply. 2. Time : the greater is the time horizon, the easier it is for firms to respond to price d th hi h i th lt i i
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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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This note was uploaded on 06/12/2011 for the course CS 1 taught by Professor Staff during the Fall '08 term at Cornell University (Engineering School).

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Econ1-Fall2010-04c-Elasticity-handout - supply. 6 lasticity...

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