4.1.11 Elasticity of Supply

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Microeconomics: The Power of Markets

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University of Pennsylvania

Microeconomics: The Power of Markets

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We make economics decisions every day: what to buy, whether to work or play, what to study. We respond to markets all the time: prices influence our decisions, markets signal where to put effort, they direct firms to produce certain goods over others. Economics is all around us. This course is an introduction to the microeconomic theory of markets: why we have them, how they work, what they accomplish. We will start with the concept of scarcity and how specialization according to comparative advantage helps us achieve more than we could alone. Next we model a marked using the tools of Supply and Demand and learn what well working markets accomplish and what their limit are. We end by exploring the impact of government intervention on perfect markets. Examples are taken from everyday life, from goods and services that we all purchase and use. We will apply the theory to current events and policy debates through weekly exercises. These will empower you to be an educated, critical thinker who can understand, analyze and evaluate market outcomes.

從本節課中

Understanding Markets: Elasticities, Market Surplus, Efficiency, and Equity

There is a lot of terminology this week. We will introduce of the concept of elasticity of demand that measures the responsiveness of quantity demanded to a change in the price of a good. We will explore the relationship between change in price and revenue or sales and how elasticities can help us predict whether a decrease in price will increase or decrease revenue. We then introduce other elasticities of note: cross price elasticity, income elasticity and elasticity of supply. We end the week by exploring the great accomplishment of markets: maximizing the size of the pie or the total benefit to society.

4.1.6 Elasticity and Revenue: Part 13:29

4.1.7 Elasticity and Revenue: Part 21:56

4.1.8 Unit Elastic Demand Curve2:18

4.1.9 Cross Price Elasticity: Complements vs. Substitutes2:59

4.1.10 Income Elasticity: Normal vs. Inferior Goods2:49

4.1.11 Elasticity of Supply3:23

4.1.12 Elasticity: Summary1:09

與講師見面

Rebecca Stein
Senior Lecturer
Economics

[MUSIC]

We've looked at elasticities on the demand side, and

I'd like to spend just a couple of minutes looking at elasticity on the supply side,

or elasticity of supply, which measures the responsiveness of the supply curve.

We know that supply curves are upward sloping, that a change in price or

an increase in price will increase the quantity supplied.

But the question is by how much?

And that is what the elasticity of the supply measures.

So all supply curves are upward sloping, but

they can be relatively mildly upward sloping, or they can be relatively steep.

So in this example, s0 is a relatively elastic supply curve.

A change in price changes the quantity supplied by a lot.

And this is a relatively inelastic supply curve,

you're supplying basically the same amount, no matter what the price is.

Let's think here of two extremes.

The completely inelastic supply curve and the completely elastic supply curve.

A completely inelastic supply curve, or

a curve with a supply elasticity of zero is going to be a vertical line.

This is a firm that has a quantity to sell,

maybe 50 pounds of mangoes and will sell that product no matter what.

This is a good example maybe facing a seller who has a perishable good.

If you're a fisherman, and you start selling fish you're going to sell them at

the going market price, because otherwise your fish will go bad.

Another extreme is the completely ollastic supply curve.

And that is the horizontal supply curve, and

in this case the elasticity supply is equal to infinity.

This is a firm that says the following at a going price,

let's say $5 per pound, I'm willing to sell all the quantity that I have.

But if the price drops even by $0.01, I'm not interested in selling.

And this must be an example where the seller has another

output where they can sell their good.

So another market, and they say to themselves, well, if I'm not going to sell

it to this consumer I can go ahead, and I can sell it somewhere else.

And that's why they're not willing to sacrifice a lower price.

So again, elasticity of supply looks at the responsiveness

of the quantity supplied to the price.

So it's the percentage change in quantity supplied over the percentage

change in price.

We're looking at how steep the supply curve is, the steeper it is,

the closer is, the elasticity of supply to zero,

the less steep it is, the closer it is to infinity.

So elasticity of supply is going to be between 0 and infinity.

The closer it is to 0, the less elastic is the supply.

The closer it is to infinity, the more elastic is the supply curve.

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