ECON 1 Lecture Notes 1018

ECON 1 Lecture Notes 1018 - ECON 1 Lecture Notes 10/18/10...

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ECON 1 Lecture Notes 10/18/10 Price Elasticity of Supply - percentage change in quantity supplied from a 1% change in price - elasticity supplied is always equal to 1 along supply curve Perfectly Inelastic Supply - zero price elasticity of supply has no response to change in price Perfectly Elastic Supply - infinite price elasticity of supply; sell all you can at a fixed price Determinants of the Elasticity of Supply 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 changes and the higher is the elasticity of supply Elasticity and Volatility - when supply and demand are relatively inelastic, prices tend to be volatile, but the quantity bought and sold in the market is relatively stable - example: California energy market’s demand is inelastic because
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This note was uploaded on 08/30/2011 for the course ECON 1 taught by Professor Tang during the Fall '08 term at UCSD.

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ECON 1 Lecture Notes 1018 - ECON 1 Lecture Notes 10/18/10...

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