Elasticity of supply is the relationship between the

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Unformatted text preview: ce and quantity demanded. Elasticity of supply is the relationship between the per- 05 (110-127) EMC Chap 05 11/17/05 4:52 PM Page 123 centage change in quantity supplied and the percentage change in price. We can look at it as an equation: Elasticity of supply Percentage change in quantity supplied EXHIBIT 5-6 If supply is . . . That means . . . Elastic Quantity supplied changes by a larger percentage than price. For example, if price rises by 10 percent, quantity supplied rises by, say, 15 percent. Inelastic Quantity supplied changes by a smaller percentage than price. For example, if price rises by 10 percent, quantity supplied rises by, say, 5 percent. Unit-elastic Quantity supplied changes by the same percentage as price. For example, if price rises by 10 percent, quantity supplied rises by 10 percent. Percentage change in price Notice that the equation has a numerator (percentage change in quantity supplied) and a denominator (percentage change in price). Elastic supply exists when the quantity supplied changes by a greater percentage than price—that is, when the numerator changes by more than the de...
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