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Sunday, November 14, 2010
Eco401 GDB No. 01 Solution
Idea Solution.
The elasticity of supply measures the responsiveness the quantity supplied to a change in the price of that commodity.
Because supply curves slope upwards, the elasticity of supply is positive. As we move along a supply curve, positive price changes are associated with positive output changes. An increase in price causes an increase in quantity sold. The more elastic is supply the larger the percentage increases in quantity supplied in response to a given percentage change in price. Thus elastic supply curves are relatively flat and inelastic supply curves relatively steep.
There are important special cases. If the supply curve is vertical, -the quantity supplied does not change as prices changes- elasticity of supply is zero. A horizontal supply curve has an infinitely high elasticity of supply: A small drop in price would reduce the quantity producers are willing to supply from an indefinitely large amount to zero
The elasticity of supply measures the responsiveness the quantity supplied to a change in the price of that commodity.
Because supply curves slope upwards, the elasticity of supply is positive. As we move along a supply curve, positive price changes are associated with positive output changes. An increase in price causes an increase in quantity sold. The more elastic is supply the larger the percentage increases in quantity supplied in response to a given percentage change in price. Thus elastic supply curves are relatively flat and inelastic supply curves relatively steep.
There are important special cases. If the supply curve is vertical, -the quantity supplied does not change as prices changes- elasticity of supply is zero. A horizontal supply curve has an infinitely high elasticity of supply: A small drop in price would reduce the quantity producers are willing to supply from an indefinitely large amount to zero
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