Price Elasticity of Supply - Peel District School Board：供给价格弹性皮尔区教育局.ppt

Price Elasticity of Supply CIE 3M Price Elasticity of Supply Measures the responsiveness of quantity supplied to a change in the products price. How much does quantity supplied change when the price of the product changes? Formula: PES = percentage change in Quantity Supplied percentage change in Price The supply curves all have positive slopes, so an increase in price causes an increase in quantity supplied. Types of Supply Curves: Determinants of Supply Elasticity Substitution and Production Costs The ease of substitution can vary in production as well as in consumption. If capital, labour, equipment and/or land can be easily shifted from one product to another, than the supply of Product A would be elastic. Spare Capacity If the firm has lots of space to expand production quickly, then the supply will be more elastic Inventory If the firm has a lot of raw materials and components on hand, they can easily respond to a change in demand, causing the supply curve to be more elastic. Time period Supply is more elastic when the firm has a longer period of time to respond to changes in the market. In the short-run, the supply curve may be inelastic as the firm may have difficulties changing their production processes or factors of production. In the long-run, there is time for new solutions to be developed increasing the elasticity of supply. Where Elasticity Matters: Excise Taxes: The federal, provincial and municipal governments levy special taxes called excise taxes on many goods and services. Tax incidence: Who bears the burden of the tax? The consumer or the producer? Usually the tax is distributed between the consumer and the producer How much each group has to pay depends on the relative elasticities of supply and demand. Example: Lets examine the proposed tax on Cable TV services. Without taxes, the supply and demand curves might look like this, with P0 and Q0 being the market equilibrium price and quantity. Our market will not always allow selle