Price elasticity of supply and the slope of the slope curve, Managerial Economics

PRICE ELASTICITY OF SUPPLY AND THE SLOPE OF THE SLOPE CURVE

1463_price elasticity of supply.png

For a straight line supply curve, the gradient is constant along the whole length of the curve, but elasticity is not necessarily constant.  However, at any given point the steeper the supply curve, the more inelastic will be the supply.  For this reason, steeply sloped supply curves are usually associated with inelastic supply and non-steeply sloped supply curves are usually associated with elastic supply.

In the first diagram, when price increases from P1 to P2, quantity supplied increases in less proportion from q1 to q2.  Conversely, when price falls from P2 to P1, quantity supplied falls in less proportion from q2 to q1.

In the second diagram, when price rises from P11 to P21, quantity supplied rises in greater proportion from q11 to q21, and when price falls from P21 to P11, quantity supplied falls in greater proportion from q21 to q11.

Posted Date: 11/27/2012 6:47:26 AM | Location : United States







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