Supply and Elasticity of Supply - Intro to Economics...
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Supply and Elasticity of Supply Intro to Economics Lecture 6 Petar Stankov [email protected] Nov. 2014 P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 1 / 11
Transcript of Supply and Elasticity of Supply - Intro to Economics...
Supply and Elasticity of SupplyIntro to Economics Lecture 6
Petar Stankov
Nov. 2014
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 1 / 11
SupplyDefinition, intuition, modelling and graphing
SupplyA rational decision on howmuch quantity to supply, ifany
General setting: Sx =f (px ,E{px t+1}, pi ,T ,N, πalt , ...)
Supply w.r.t the price px and shift in supply
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 2 / 11
SupplyDefinition, intuition, modelling and graphing
SupplyA rational decision on howmuch quantity to supply, ifany
General setting: Sx =f (px ,E{px t+1}, pi ,T ,N, πalt , ...)
Supply w.r.t the price px and shift in supply
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 2 / 11
Why Does Supply Depend on Price?Total, average and the marginal product
Example: studying for exams; average and marginal class performance; fuelconsumption of a carP.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 3 / 11
Why Does Supply Depend on Price?Average and Marginal Product, Average and MARGINAL COSTS
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 4 / 11
Why Does Supply Depend on Price?Price and marginal costs
How does the Marginal Costs curve shift? How does that affect quantitysupplied?
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 5 / 11
Own-Price Elasticity of SupplyDefining supply elasticity
The general model: Sx = f (px ,E{px t+1}, pi ,T ,N, πalt , ...)
Supply elasticity (Еластичност на предлагането)A measure of how much supply reacts to changes in its factors
Price elasticity of supply (Еластичност на предлагането от цената)By how much (in % points) does supply change if price changes by 1%
εSxpx = ∆Sx=?%∆px=1%
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 6 / 11
Own-Price Elasticity of SupplyDefining supply elasticity
The general model: Sx = f (px ,E{px t+1}, pi ,T ,N, πalt , ...)
Supply elasticity (Еластичност на предлагането)A measure of how much supply reacts to changes in its factors
Price elasticity of supply (Еластичност на предлагането от цената)By how much (in % points) does supply change if price changes by 1%
εSxpx = ∆Sx=?%∆px=1%
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 6 / 11
Supply elasticityA graphical representation
Elastic supply
Inelastic supplyP.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 7 / 11
Further info
Reading:Sloman, Ch. 2: 39-42; 119-131Икономикс, глава 5-6
Do not miss:economist.com; wsj.com; cnbc.com; the economic news
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 8 / 11
AppendinxReal-Life Average and Marginal Product and Costs
An example of declining marginalcosts: facebook
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AppendixHow does Facebook help understand micro?
An example of a total product:facebook delivers people
An example of declining marginalcosts: facebook
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 10 / 11
AppendixWhy Firms Exist: The Profit
ProfitThe difference between total revenues and total costs
π = TR − TC = p.Q(L,K )− w .L− r .K
Can we find the optimal point for the firm: how much capital and laborshould the firm hire in order to maximize its profit?
P.Stankov (UNWE, CERGE-EI) Lecture 06 Nov. 2014 11 / 11
