ECO 1001 Study Guide - Midterm Guide: Variable Cost, Marginal Cost, Fixed Cost
7 Feb 2019
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Elastic: quantity demanded is sensitive to a change in price; change in large degree. In the elastic range price and total revenue move in opposite directions. The result is a somewhat greater output in response to a presumed increase in demand; this greater output is reflected in a more elastic supply. The equilibrium price is therefore lower in the short run than in the market period. In the immediate market period, there is insufficient time to change output, and so supply is perfectly inelastic. In the short run, plant capacity is fixed, but changing the intensity of its use can alter output; supply is therefore more elastic. In the long run, all desired adjustments, including changes in plant capacity, can be made, and supply becomes still more elastic. If the cross elasticity of demand is positive then x and y are substitute goods.
