4.2 Price Elasticity of Supply Flashcards
What is Price elasticity of supply?
price elasticity of supply (ηS)(ηS)
A measure of the responsiveness of quantity supplied to a change in the product’s own price.
Why do supply curves all have positive slopes?
This is often called supply elasticity. The supply curves considered in this chapter all have positive slopes: An increase in price causes an increase in quantity supplied. Such supply curves all have positive elasticities because price and quantity change in the same direction.
At what points on the supply curve is supply considered elastic? Inelastic?
As was the case with demand, care must be taken when computing supply elasticity. Keep in mind that even though the supply curve may have a constant slope, the measure of supply elasticity may be different at different places on the curve. When ηS>1,ηS>1, supply is said to be elastic; when ηS<1,ηS<1, supply is said to be inelastic.
What is the elasticity when a supply curve is vertical?
If the supply curve is vertical—the quantity supplied does not change as price changes—then elasticity of supply is zero.
What is the elasticity of supply if the curve is horizontal?
A horizontal supply curve has an infinite elasticity of supply: There is one critical price at which output is supplied but where a small drop in price will reduce the quantity that producers are willing to supply from an indefinitely large amount to zero.
The ease of substitution can vary in production as well as in consumption. If the price of a product rises, how much more can be produced profitably?
Ease of Substitution
This depends in part on how easy it is for producers to shift from the production of other products to the one whose price has risen.
How dose short run and long run changes effect elasticity?
Short Run and Long Run
As with demand, length of time for response is important. It may be difficult to change quantity supplied in response to a price increase in a matter of weeks or months but easy to do so over years.
What is the difference between a short run and a long run supply curve?
The short-run supply curve shows the immediate response of quantity supplied to a change in price given producers’ current capacity to produce the good. The long-run supply curve shows the response of quantity supplied to a change in price after enough time has passed to allow producers to adjust their productive capacity.
What has more elasticity? A a short run or a long run supply curve?
The long-run supply for a product is more elastic than the short-run supply.
What is the market-clearing response to a short run response to an increase in demand?
The inability of firms to change their output in the short run in response to the increase in demand means that the market-clearing response is mostly an increase in price.
