ECON 211 Lecture 12: Oct 19 Notes - Elasticity part 2

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27 Dec 2015
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ECON 2110: Intro to Microeconomics
October 19
Topic 4: Measuring Responsiveness to Price – Elasticity Part 2
Objectives: To understand elasticity – what it means, how its measured, how
to use it
1. Elasticity and Time
Demand and supply are always MORE elastic in the long run than short
term
Set of substitutes increase as time goes by
** The longer the period, the greater # of actions a consumer or
producer can take (aka some actions become less costly as time
passes)
2. Perfectly Inelastic Demand
If demand is perfectly inelastic, Ed = 0
Qd does not change even if price changes (completely vertical D
curve)
*** NO SUBSTITUTES ***
For what product might demand be perfectly inelastic?
NOTHING! There are substitutes for everything!
Demand is NEVER perfectly inelastic, and is ALWAYS more elastic
in the long run
3. Perfectly Elastic Demand
If demand is perfectly elastic, Ed = in>nity
Smallest rise in price would reduce Qd to zero
Horizontal curve
Identical “perfect” substitutes
4. Perfectly Elastic Supply
Implies that Qs can be expanded w/o raising per unit costs
Gives useful approximation for manufacturing
Horizontal curve
5. Perfectly Inelastic Supply
Implies there would be no increase in quantity supplied regardless of
size of increase in price
Good approximation for number of parking spaces, etc