ECON 1B03 Lecture Notes - Lecture 8: Substitute Good

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Price elasticity of supply, es: measure of how much quantity supplied of a good responds to a change in price of good. Price elasticity of supply is % change in quantity supplied resulting from % change in price. Since p and qs always move in same direction, es will always be > 0. Just as we did for price elasticity of demand, we can categorize types of elasticity of supply: Qs will not change for any change in p. Es b/w 0 and 1 (a fraction) Supply does not respond greatly to a change in p. Supply is responsive to changes in p. Any price change will affect qs infinitely. It would be a good that had many perfect substitutes in production and one that unit cost of production didn"t change regardless of how many were produced. A % change in p is exactly offset by a % change in qs.

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