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Law_of_Supply_and_Elasticity_of_Supply

Law_of_Supply_and_Elasticity_of_Supply

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Law_of_Supply_and_Elasticity_of_Supply

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  1. Law of Supply and Elasticity of Supply Supply: the amount of goods available

  2. Law of Supply • Law of Supply: the higher the price, the larger the quantity produced • P QS • P QS • Quantity Supplied: how much of a good is offered for sale at a specific price - -the amount a supplier is willing and able to supply at a certain price

  3. Supply Schedule

  4. S 3.00 2.50 2.00 1.50 1.00 .50 0 0 100 150 200 250 300 350

  5. Elasticity of Supply • Elasticity of Supply: a measure of the way suppliers respond to a change in price • Elastic: sensitive/responsive to change in price (greater than 1) • Inelastic: not sensitive or not responsive to a change in price (less than 1) • Unitary: Equal change in price to equal change in supply (= to 1)

  6. Elasticity of Supply • A supplier’s responsiveness to a price change is called _________________ • (think like a supplier/seller) • 3 Factors that will determine a product’s elasticity • Availability of resources required to make the product • Amount of time required to make the product • Skill level of the worker needed to make the product Elasticity of Supply

  7. Elastic Supply • A product has elastic supply when a price change causes a significant change in the quantity supplied. (What would have to be true (of a product) to allow a seller to quickly increase production if the market price goes up?) • Abundance of resources required to make the product • Product can be made quickly • Low skill level of workers required

  8. Slope of an Elastic supply curve • Remember, if the price changes, the quantity supplied changes a lot. This creates a flatter curve. P P2 s P1 Q2 Q1 Q

  9. Inelastic Supply • A price change causes very little change in the quantity supplied= Inelastic. This happens because… • 1.The product requires scarce resources • 2. It takes a long time to make • 3. It requires a high skill level of workers • examples? • Hand crafted furniture • diamonds

  10. Slope of an inelastic supply curve • If the market price goes up but the supplier cannot increase production very much, then this creates a steeper curve. s P P2 P1 Q1 Q2 Q

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