Elasticity of Supply Chp 5 Sec 1.

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Price Elasticity of Supply

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Presentation transcript:

Elasticity of Supply Chp 5 Sec 1

Elasticity of Supply Supply is elastic when a small increase in price leads to a larger increase in output—and supply.

Supply is inelastic when a small increase in price causes little change in supply. Supply is unit elastic when a change in price causes a proportional change in supply.

Determinants of supply elasticity how quickly a producer can act when the change in price occurs. If adjusting production can be done quickly, the supply is elastic.

substitution: if substituting for a given product is easy, the supply is elastic if it is difficult to substitute, the supply is inelastic.