Chapter 5

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5-2c The Variety of Supply Curves

Because the price elasticity of supply measures the responsiveness of quantity supplied to the price, it is reflected in the appearance of the supply curve. Figure 5 shows five cases. In the extreme case of a zero elasticity, as shown in panel (a), supply is perfectly inelastic and the supply curve is vertical. In this case, the quantity […]

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5-2b Computing the Price Elasticity of Supply

Now that we have a general understanding about the price elasticity of supply, let’s be more precise. Economists compute the price elasticity of supply as the percentage change in the quantity supplied divided by the percentage change in the price. That is,  Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price. For […]

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5-2a The Price Elasticity of Supply and Its Determinants

The law of supply states that higher prices raise the quantity supplied. The price elasticity of supply measures how much the quantity supplied responds to changes in the price. Supply of a good is said to be elastic if the quantity supplied responds substantially to changes in the price. Supply is said to be inelastic if the quantity supplied responds only […]

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5-2 The Elasticity of Supply

When we introduced supply in Chapter 4, we noted that producers of a good offer to sell more of it when the price of the good rises. To turn from qualitative to quantitative statements about quantity supplied, we once again use the concept of elasticity. 5-2a The Price Elasticity of Supply and Its Determinants 5-2b Computing the […]

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5-1g Other Demand Elasticities

In addition to the price elasticity of demand, economists use other elasticities to describe the behavior of buyers in a market. The Income Elasticity of Demand The income elasticity of demand measures how the quantity demanded changes as consumer income changes. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. […]

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5-1f Elasticity and Total Revenue along a Linear Demand Curve

Let’s examine how elasticity varies along a linear demand curve, as shown in Figure 4. We know that a straight line has a constant slope. Slope is defined as “rise over run,” which here is the ratio of the change in price (“rise”) to the change in quantity (“run”). This particular demand curve’s slope is […]

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5-1e Total Revenue and the Price Elasticity of Demand

When studying changes in supply or demand in a market, one variable we often want to study is total revenue, the amount paid by buyers and received by sellers of a good. In any market, total revenue is P × Q, the price of the good times the quantity of the good sold. We can show total revenue graphically, […]

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5-1d The Variety of Demand Curves

Economists classify demand curves according to their elasticity. Demand is considered elastic when the elasticity is greater than 1, which means the quantity moves proportionately more than the price. Demand is considered inelastic when the elasticity is less than 1, which means the quantity moves proportionately less than the price. If the elasticity is exactly 1, the percentage change […]

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