All Flashcards
What are the key differences between price elasticity of supply and price elasticity of demand?
PES measures the responsiveness of quantity supplied to price changes, while PED measures the responsiveness of quantity demanded to price changes. PES is usually positive, while PED is usually negative.
Differentiate between perfectly inelastic supply and perfectly inelastic demand.
Perfectly inelastic supply means quantity supplied does not change with price. Perfectly inelastic demand means quantity demanded does not change with price.
Compare and contrast factors affecting PES and PED.
PES is affected by factors like production time, storage capacity, and availability of resources. PED is affected by factors like availability of substitutes, necessity of the good, and time horizon.
What is the difference between short-run and long-run PES?
Short-run PES is generally more inelastic because firms have less time to adjust production. Long-run PES is generally more elastic because firms have more time to adjust.
Differentiate between unit elastic supply and unit elastic demand.
Unit elastic supply means the percentage change in quantity supplied equals the percentage change in price. Unit elastic demand means the percentage change in quantity demanded equals the percentage change in price.
What is the difference between elasticity and slope?
Elasticity is a measure of responsiveness, while slope is a measure of the rate of change. Elasticity is unit-free, while slope has units.
How do elasticity and revenue relate?
With elastic demand, a price decrease increases revenue. With inelastic demand, a price increase increases revenue. Elasticity of supply does not directly relate to revenue in the same way.
Compare the impact of a tax on goods with elastic vs. inelastic supply.
A tax on goods with elastic supply will lead to a larger decrease in quantity supplied and a smaller increase in price, compared to goods with inelastic supply.
Compare the impact of a subsidy on goods with elastic vs. inelastic supply.
A subsidy on goods with elastic supply will lead to a larger increase in quantity supplied and a smaller decrease in price, compared to goods with inelastic supply.
What is the difference between a change in supply and a change in quantity supplied?
A change in supply is a shift of the entire supply curve due to a change in a non-price determinant of supply. A change in quantity supplied is a movement along the supply curve due to a change in price.
What does a vertical supply curve indicate?
Perfectly inelastic supply (Es = 0).
What does a horizontal supply curve indicate?
Perfectly elastic supply (Es = ∞).
If a supply curve is steep, is supply elastic or inelastic?
Inelastic.
If a supply curve is relatively flat, is supply elastic or inelastic?
Elastic.
How does a change in technology shift the supply curve, and what does it imply for PES?
A new technology shifts the supply curve to the right, increasing the quantity supplied at every price. This can make supply more elastic.
How does an increase in input costs affect the supply curve, and what does it imply for PES?
An increase in input costs shifts the supply curve to the left, decreasing the quantity supplied at every price. This can make supply more inelastic.
What does it mean if the supply curve is a straight line passing through the origin?
Unit elastic supply (Es = 1).
How can you visually estimate PES from a supply curve?
Compare the percentage change in quantity supplied to the percentage change in price. A larger quantity change for a given price change indicates higher elasticity.
How does the slope of the supply curve relate to PES?
A steeper slope indicates lower PES (more inelastic), and a flatter slope indicates higher PES (more elastic).
What happens to the equilibrium price and quantity when a supply curve shifts rightward and demand is inelastic?
Price decreases significantly, and quantity increases slightly.
How does PES apply to a firm with high fixed costs?
A firm with high fixed costs typically has a relatively inelastic supply because it can't quickly ramp up production in response to price changes.
How does PES apply to a commodity like wheat?
Wheat typically has a perfectly elastic supply because there are many suppliers, and quantity supplied becomes infinite with even a tiny price increase.
A company has a monopoly on a unique product. What type of PES does it likely have?
Perfectly inelastic supply. They'll supply the same amount regardless of price.
How does PES apply to a firm that can quickly increase production with low costs?
Relatively elastic supply. Quantity supplied changes a lot with price changes.
If the price of apples increases, and apple farmers significantly increase their output, what does this suggest about the PES of apples?
It suggests that the PES of apples is relatively elastic, as the quantity supplied is responsive to price changes.
A rare painting is put up for auction. How does PES apply?
The painting has a perfectly inelastic supply because only one exists, and the quantity supplied cannot change regardless of the price.
How does PES relate to the availability of resources?
If resources are readily available, supply tends to be more elastic. If resources are scarce, supply tends to be more inelastic.
How does PES relate to the time it takes to produce a good?
Goods that take a long time to produce tend to have more inelastic supply in the short run.
How does PES relate to storage capacity?
If a good can be easily stored, supply tends to be more elastic, as producers can adjust the quantity supplied more easily.
How does PES apply to a concert venue with fixed seating?
The supply of seats is perfectly inelastic in the short run because the number of seats cannot change regardless of the price.