Econo 2202 CH 6.6 Notes

If supply is perfectly elastic, then the value of price elasticity is

equal to infinity any increase in price causes the percentage change in quantity supplied to become infinite

If supply is perfectly inelastic, then the value of price elasticity is

equal to zero an increase or decrease in price causes no change in quantity supplied

If supply is elastic, then the value of price elasticity is

greater than 1 an 11% increase in price causes an 18% increase in quantity supplied

over a longer period of time

the supply curve will become increasingly elastic

For most​ products, the supply curve becomes increasingly inelastic the longer the period of time over which it is measured.

true

If the price elasticity of supply is equal to 1, then supply is

unit elastic

If a supply curve is a vertical​ line, it is​ ________, and if it is a horizontal​ line, it is​ ________.

perfectly inelastic and has an elasticity value of​ zero; perfectly elastic and has an elasticity value of infinity

perfectly elastic supply curve

quantity supplied is infinitely responsive to price and the price elasticity of supply equals infinity if a supply curve is perfectly elastic, a very small incfease in price causes a very large increase in quantity supplied

perfectly inelastic supply curve

quantity supplied is unresponsive to price, and the price elasticity of supply equals zero regardless of how much price may increase of decrease, the quantity remains the same over a brief period of time, some supply of goods and services may be perfectly inelastic

How is price elasticity of supply calculated?

% change in quantity supplied / % change in price

On most​ days, the price of a rose is​ $1, and​ 8,000 roses are purchased. On​ Valentine's Day, the price of a rose jumps to​ $2, and​ 30,000 roses are purchased. Use the line drawing tool to illustrate the price and quantity increase. Label the line you draw ​'D1​'. Carefully follow the instructions​ above, and only draw the required objects. Based on this​ information, we do not know much about the price elasticity of demand for roses because the demand curve was not constant. ​However, we do have constant supply. What is price elasticity of​ supply?

1.74 (30,000-8,000)/ [(8,000+30,000)/2] divided by (2-1)/[(1+2)/2]

If a supply curve is a vertical line,

It is perfectly inelastic

The price elasticity of supply always has

a positive value

Suppose that instead of being highly​ inelastic, the demand for oil is highly elastic. a. Given the situation illustrated by the graph to the right​ (with two highly inelastic demand​ curves), the resulting price change from the demand for oil being highly elastic would be b. Given the situation illustrated by the graph to the right​ (with two supply​ curves), the resulting price change from the demand for oil being highly elastic would be

a. smaller than the actual price change shown in the graph. explanation: The same increase in demand but assuming that demand is much more elastic results in a much smaller increase in price. b. smaller than the actual price change shown in the graph.

If the price elasticity of supply is greater than 1, then supply is

elastic

If supply is unit elastic, then the value of price elasticity is

equal to 1 an 11% increase in price causes an 11% increase in quantity supplied

What does price elasticity of supply measure?

how much the quantity supplied responds to changes in the price.

If the price elasticity of supply is less than 1, then supply is

inelastic

if a supply curve is a horizontal line,

it is perfectly elastic

If supply is in elastic, then the value of price elasticity is

less than 1 an 11% increase in price causes a 5% increase in quantity supplied

When demand​ increases, equilibrium price will rise​ ____________ when supply is​ _________ elastic.

more; less

over a short period of time

most products will be inelastic when measured

When demand increases, the amount by which price increases depends on...

price elasticity of supply

Whether supply is elastic or inelastic depends on...

the ability and willingness of firms to alter the quanity they produce as price increases