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Elasticity of Supply

Elasticity of Supply. Calculation. E s = %change QS / % change P. Define?. -Indicates SUPPLY’s RESPONSIVENES to a CHANGE in the PRICE of a product. Perfect IN elasticity. Es=0. IN elactic. 0<Es<1 Change in P results in a LESS than proportionate change in QS.

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Elasticity of Supply

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  1. Elasticity of Supply

  2. Calculation Es = %change QS / % change P Define? -Indicates SUPPLY’s RESPONSIVENES to a CHANGE in the PRICE of a product.

  3. Perfect INelasticity Es=0

  4. INelactic 0<Es<1 Change in P results in a LESS than proportionate change in QS. (i.e. Change in price > change in quantity)

  5. UNITary Elasticity Change in P is proportionate to change in QS. (i.e. Change in P = to change in QS) Es = 1

  6. Perfect Elastic Es=Infinite

  7. Elastic Change in P is less than proportionate then change in QS. i.e. Change in P < Change in QS

  8. Continuum Inelastic Elastic Perfect Inelasticity Unitary Elasticity Perfect Elasticity

  9. Part 2 Elasticity of Supply & Time Frames

  10. Momentary Supply Conditions -Shows supply at 1 point in time. -Any change in P won’t change QS. -All inputs are fixed. -PERFERCTLY INELASTIC (Es=0) -Therefore supply not responsive.

  11. Short-Term Supply Conditions -Suppliers response to change in P is limited. -Labour/Raw Materials are variable inputs, whilst capital remains a fixed input. -Therefore diminishing returns can occur now. -INELASTIC (Es<1) -Therefore not very responsive.

  12. Long-Term Supply Conditions -Suppliers can easily respond to a change in P. -All inputs are variable. -Therefore producers should benefit from ‘economies of scale’. -ELASTIC (Es>1) -Therefore very responsive

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