P elasticityissmall1 15 12 elasticityis large1 4 3 0

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Unformatted text preview: se in price… 100 2…leaves the quantity supplied unchanged Q P $5$5 0 100 110 Q 2…leads to a 10% increase (c) Unit Elastic Supply: in quantity supplied Elasticity = 1 S 4 1.An 22% increase in price… 0 100 125 Q 2…leads to a 22% increase in quantity supplied Price Elasticity of Supply (2) (d) Elastic Supply: Elasticity >1 P S $5 P 1.At any price above $4, quantity supplied is infinite. $5$5 4 4 1.An 22% increase in price… 0 (e) Perfectly elastic Supply: Elasticity = infinite 100 200 Q 2…leads to a 67% increase in quantity supplied 0 S 2…At exactly $4, producers will supply any quantity. 100 Q How the Price Elasticity of Supply Can Vary How Because firms often have a maximum capacity for production, the elasticity of supply may be very high at low levels of quantity supplied and very low at high levels of quantity supplied. Here, an increase price from $3 to $4 increase the quantity supplied from 100 to 200. Because the increase in quantity supplied of 67% is larger than the increase in price of 29%, the supply curve is elastic in this range. By contrast, when the price rises from $12 to $15, the quantity supplied rises only from 500 to...
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This note was uploaded on 12/06/2011 for the course BUSINESS Finance taught by Professor Qiuxin during the Summer '11 term at Nanjing University.

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