Determinants of price elasticity of demand

There are a number of factors that can influence the price elasticity of demand for an item. These factors include:

1. The availability доступность of substitutes замены. Remember that a substitute for a good is one that serves the same general purpose. In general, more and better substitutes that exist for an item, more elastic its demand.

2. Time. In general, demand tends to become more elastic with time because we find more substitutes for goods over longer periods.

3. The proportion of income consumers spend on the good.

In general, other things being equal, the smaller the percentage of income spent on a good, the less elastic the demand unless the good is considered a dispensable необязательно luxury.

2. Price elasticity of supply

Elasticity of supply is a measure of the sensitivity of supply to changes in prices. As you'll see, knowledge of the supply elasticity of products is very useful in forecasting the impact of policies designed to influence quantities supplied by sellers in markets.

The concept of price elasticity of supply has similarities to the concept of price elasticity of demand.

The price elasticity of supply is a number used to measure the sensitivity of changes in quantity supplied to given percentage changes in the price of a good, other things being equal. Price elasticity of supply indicates the percentage change in quantity supplied resulting from each 1 percent change price. It can be calculated by dividing the percentage change in quantity supplied by the percentage change in price that caused it, given all other supply determinants:

E_S = % ΔQ_S ∕ % ΔP ,

E_S – price elasticity of supply;

% ΔQ_S – percentage change in quantity supplied;

% ΔP – percentage change in price.

Since supply curves generally slope наклоняется upward вверх, supply elasticity tends to be positive. An increase in price tends to generate an increase in quantity supplied, while a decrease in price generates a decrease in quantity supplied. In the equation for city of supply, the signs of the numerator and the denominator will be the same. The ratio will therefore have a positive sign.

Determinants of price elasticity of supply

Price elasticity of supply ranges from 0 to infinity.

1. An elastic supply prevails преобладает when the price elasticity of supply is greater than 1.

2. If the price elasticity of supply is equal to or greater than 0 but less than 1, an inelastic supply prevails.

3. When elasticity of supply is just equal to 1, a unit elastic supply prevails.

Table 4.2 summarizes the relationship between percentage changes in price and quantity supplied for various cases.

The greater the price elasticity of supply of an item, the more responsive, or elastic, is the quantity supplied to given percentage price changes. Чем больше ценовая эластичность поставки пункта, тем более отзывчивый, или упругий, является количеством, поставляемым данным изменениям цен процента.

Table 4.2

Price Elasticity of Supply as a Gauge шаблон of Demand Responsiveness отзывчивость

Supply response	% Δ QS relative to % Δ P	Value of ES
Inelastic	% Δ QS is less than % Δ P	Equal to or greater than 0 but less than 1
Unit elastic	% Δ QS equals % Δ P	1
Elastic	% Δ QS is greater than % Δ P	Greater than 1

Determinants of price elasticity of supply

In general, a good's price elasticity of supply depends on the extent степени to which costs per unit as sellers increase output. If unit costs of production don't rise rapidly стремительно as output expands расширять, small percentage increases in price will result in large percentage increases in quantity supplied. Under such circumstances,обстоятельства supply will be very elastic because small increases in price will allow sellers the possibility of additional gain without substantial реальный price increases.