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

Price Elasticity of SupplyCIE 3MPrice Elasticity of SupplynMeasures the responsiveness of quantity supplied to a change in the product's price.nHow much does quantity supplied change when the price of the product changes?Formula:PES = percentage change in Quantity Suppliedpercentage change in PriceThe supply curves all have positive slopes, so an increase in price causes an increase in quantity supplied.PES= 0Types of Supply Curves:PES= infinityDeterminants of Supply ElasticitynSubstitution 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. nSpare Capacity •If the firm has lots of space to expand production quickly, then the supply will be more elasticnInventory •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.nTime 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:nExcise Taxes: •The federal, provincial and municipal governments levy special taxes called excise taxes on many goods and services.Level of GovernmentType of good that is taxedFederalgst – all goods and servicesProvincialpst – many goods + Gasoline cigarettes Municipale.g. plastic bagsTax incidence:nWho bears the burden of the tax? The consumer or the producer?nUsually the tax is distributed between the consumer and the producernHow much each group has to pay depends on the relative elasticities of supply and demand.Example:nLet's examine the proposed tax on Cable TV services.nWithout taxes, the supply and demand curves might look like this, with P0 and Q0 being the market equilibrium price and quantity.nOur market will not always allow sellers to pass the tax entirely on to the consumer.nIdeally, when a tax of t is imposed, the supply curve shifts to S1, which lies to the left of the original supply curve by the amount of t. pProducers would like to charge the price P for the product (equilibrium price PLUS the tax, but market forces drive the price down to the new equilibrium price.surplusElasticity and Tax BurdennWhen the demand is elastic: •The producers need to absorb more of the tax in order to prevent a large decrease in quantity demanded. If they pass on too much of the tax to the consumer, the price will rise significantly causing a fall in demand.nWhen the demand is inelastic: •The consumers pay a majority of the tax as they are still willing to purchase the good even at a higher price. Quantity demanded doesn’t fall as much.。