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AGEC 200 (18)
Lecture

2012.09.27.docx

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Department
Agricultural Economics
Course
AGEC 200
Professor
Anwar Naseem
Semester
Fall

Description
Price of Supply - % change in Q /%schange in P - Use midpoint again - Ex: increase P by 8%, might rise Q in 16%, therefore E = 2.0 The Variety of Supply curves - Classify according to elasticity - Flatter curve = higher elasticity Perfectly Inelastic: - S curve = vertical - Sellers’ price sensitivity = 0 - Elasticity = 0 Inelastic - S curve relatively steep - Sellers’ price sensitivity = relatively low - <10%/10% = <1 Elasticity Unit Elastic - Elasticity = 1 Elastic - S curve relatively flat - Sellers’ price sensitivity is relatively high - >10%/10% = >1 elasticity - producers can produce more as response to increase P Perfectly Elastic - S curve is horizontal - Seelers’ price sensitivity is extreme - Elasticity is infinity (any %/10%) Determinants of Supply Elasticity - What makes producing one thing supply elastic, or inelastic - Ex: Land purchasing. Land is always fixed. Might have zoning laws, can’t increase amount of land available o If prices of land grows, not a whole lot people can do to supply more land - Ex: new cars, if Toyota is making cars lower capacity and sudden increase in demand, they can increase production. Are able to respond to the price - Therefore, type of good we’re talking about might determine type of elasticity o If cannot change output as a result of change in price, then very inelastic o Can increase production in long run but in short run may be fixed with all the resources that they have  More elastic in long run but inelastic in short run - Land: imagine there’s population growth (inc demand) d o At each price, Q doubles o For which product will P change the most? o Land: Even if big increase in price, not going to get a lot of people to supply that land o In case of cars, increase in demand has a much bigger impact on the quantity b/c S curve more flat - How Price Elasticity of Supply can Vary o Initially might be only producing 200 cars/month o As prices increase, car manufacturer can ramp up production o But as getting closer to capacity level (esp in short run), then supply curve becomes less elastic…(inelastic)  Going from being elastic to inelastic o If Long term then can be just as elastic b/c can possibly build more factories. Will get curve that is more elastic throughout Inco
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