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Macroeconomics II –The market system

4.4 Price elasticity of supply

Price elasticity of supply = % change in supply

% change in price

 Always positive

 Average or non-average arc method

 >1 is “elastic”

 <1 is “inelastic”.

4.5 Factors affecting elasticity of supply

 Time frames More inelastic in the short term

 Factors of production Availability of factors e.g. trained labour → more elastic

 Inventory levels Higher inventory → more elastic

 Competition More firms → more elastic

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