Perfectly inelastic supply supply curve is vertical

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Perfectly Inelastic Supply -Supply curve is vertical -Price elasticity of supply = 0 Perfectly Elastic Supply - Supply curve is horizontal -Price elasticity of supply =
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GESB 1006: Economics of Everyday Life University of Macau Price Elasticity of Demand Question: What’s the relationship between the value of elasticity and the slope of a supply curve? For other supply curves, the flatter the supply curves -the greater the price elasticity of supply
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GESB 1006: Economics of Everyday Life University of Macau Perfectly Inelasticity Supply S Supply curve: vertical Sellers’ price sensitivity: none Elasticity: 0 P Q Q 1 P 1 P 2 Q changes by 0% 0% 10% = 0 Price elasticity of supply = % change in Q % change in P = P rises by 10%
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GESB 1006: Economics of Everyday Life University of Macau Inelastic Supply S Supply curve: relatively steep Sellers’ price sensitivity: relatively low Elasticity : < 1 P Q Q 1 P 1 Q 2 P 2 Q rises less than 10% < 10% 10% < 1 Price elasticity of supply = % change in Q % change in P = P rises by 10%
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GESB 1006: Economics of Everyday Life University of Macau Unit Elastic Supply S P Q Q 1 P 1 Q 2 P 2 Q rises by 10% 10% 10% = 1 Price elasticity of supply = % change in Q % change in P = P rises by 10% Supply curve: intermediate slope Sellers’ price sensitivity: intermediate Elasticity: = 1
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GESB 1006: Economics of Everyday Life University of Macau Elastic Supply S Supply curve: relatively flat Sellers’ price sensitivity: relatively high Elasticity: > 1 P Q Q 1 P 1 Q 2 P 2 Q rises more than 10% > 10% 10% > 1 Price elasticity of supply = % change in Q % change in P = P rises by 10%
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GESB 1006: Economics of Everyday Life University of Macau Perfectly Elastic Supply S Supply curve: horizontal Sellers’ price sensitivity: extreme Elasticity : infinity P Q P 1 Q 1 P changes by 0% Q changes by any % any % 0% = infinity Price elasticity of supply = % change in Q % change in P = Q 2 P 2 =
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GESB 1006: Economics of Everyday Life University of Macau Determinants of Price Elasticity of Supply A few potential factors The ability of adjusting production plan -Sellers who can relatively easily change the quantity produced will be very responsive to price changes. -Hotel Room vs Cheesecake Long Run vs Short Run -Price elasticity of supply is greater in the long run than in the short run -In the long run, firms can build new factories.
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GESB 1006: Economics of Everyday Life University of Macau Active Learning 2 Elasticity and Changes in Equilibrium Assume that the supply of hotel room is inelastic; and the supply of new cars is elastic. Suppose population growth causes demand for both goods to double. For which product will P change the most? For which product will Q change the most?
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GESB 1006: Economics of Everyday Life University of Macau Active Learning 2 When supply is inelastic , an increase in demand has a bigger impact on price than on quantity.
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  • Fall '18
  • Supply And Demand, price change, University of Macau, Economics of Everyday Life

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