74-The_Importance_of_Elasticity_of_Supply - AS Micro...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: AS Micro Revision: The Importance of Elasticity of Supply Price elasticity of supply measures the relationship between change in quantity supplied and a change in price . • When Pes > 1, then supply is price elastic • When Pes < 1, then supply is price inelastic • When Pes = 0, supply is perfectly inelastic • When Pes = infinity, supply is perfectly elastic following a change in demand Factors determining elasticity of supply 1. Spare production capacity – high Pes when businesses or the economy has plenty of spare capacity (also known as ‘productive slack’) e.g. when a business or economy is coming out of recession 2. Stocks of finished products and components – high level of stocks (inventories) means that supply can quickly be adjusted to meet changes in demand – this is important in commodity markets 3. The ease and cost of factor substitution- if both capital and labour resources are occupationally mobile then the elasticity of supply for a product is high because capital and labour can be swapped with little loss of efficiency or...
View Full Document

This note was uploaded on 02/08/2012 for the course ECO 51844 taught by Professor Sabet during the Spring '11 term at FIU.

Page1 / 2

74-The_Importance_of_Elasticity_of_Supply - AS Micro...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online