Page 8: Long-Run Equilibrium in Perfect Competition

This page focuses on the long-run equilibrium in perfectly competitive markets, an important concept for microeconomics elasticity of demand and supply notes PDF free download.

The page outlines the process by which the market reaches long-run equilibrium:

1. Initial supernormal profits attract new firms to enter the market.
2. Market supply increases as new firms join.
3. Increased supply leads to a fall in market price.
4. The process continues until normal profits are achieved.

Highlight: In the long run, perfectly competitive firms earn only normal profits due to the free entry and exit of firms in the market.

The page emphasizes that the absence of barriers to entry is crucial for this equilibrium process to occur.

Example: If firms in an industry are earning above-normal profits, new competitors will enter the market, increasing supply and driving down prices until profits return to normal levels.

Understanding this equilibrium process is essential for analyzing market dynamics and the long-term sustainability of industries under perfect competition.

Page 3: Other Elasticities - Income and Cross-Price

This page introduces two additional types of elasticity: Income Elasticity of Demand (YED) and Cross-Price Elasticity of Demand (XED). These concepts are crucial for a comprehensive understanding of price elasticity of demand and supply PDF.

Income Elasticity of Demand (YED) measures the responsiveness of demand to changes in consumer income. The page provides a detailed breakdown of YED values and their interpretations:

• YED < 0: Inferior good
• 0 < YED ≤ 1: Normal good (income inelastic)
• YED > 1: Superior normal good (income elastic)

Definition: Income Elasticity of Demand (YED) is the percentage change in quantity demanded divided by the percentage change in income.

Cross-Price Elasticity of Demand (XED) measures how the demand for one good responds to price changes in another good. This concept is particularly important for understanding the relationships between substitute and complementary goods.

Example: A positive XED value indicates that two goods are substitutes, while a negative value suggests they are complements.

The page emphasizes the importance of correctly interpreting these elasticity measures for effective economic analysis and decision-making.

Page 4: Price Elasticity of Supply (PES)

This page focuses on Price Elasticity of Supply (PES), a key concept in microeconomics elasticity of demand and supply notes PDF free download. PES measures the responsiveness of quantity supplied to changes in price.

Definition: Price Elasticity of Supply (PES) is the percentage change in quantity supplied divided by the percentage change in price of a good.

The formula for PES is presented:

PES = (% Change in Quantity Supplied) / (% Change in Price)

Unlike PED, PES is typically positive due to the direct relationship between price and quantity supplied.

The page discusses factors affecting the elasticity of supply:

1. Ease of factor substitution
2. Time period for adjustment
3. Spare capacity
4. Stocks of finished products and raw materials

Highlight: Supply tends to be more elastic in the long run as producers have more time to adjust their production processes and capacity.

The concept of elastic and inelastic supply is illustrated with supply curves, showing how the slope of the curve relates to the degree of elasticity.

Page 5: Factors Affecting Price Elasticity of Supply

This page provides an in-depth look at the determinants of elasticity in economic supply and demand PDF, focusing on the factors that influence the Price Elasticity of Supply (PES).

Key factors affecting PES include:

1. Complexity of the production process
2. Availability of inputs and raw materials
3. Time period for adjustment
4. Factor mobility
5. Spare capacity in the production process
6. Degree of specialization
7. Perishability of the product

Example: Highly perishable goods like fresh produce tend to have a more inelastic supply in the short term due to the risk of spoilage.

The page also introduces the concept of perfectly elastic and inelastic supply curves, illustrating how these extreme cases appear graphically.

Highlight: The length of the time period considered is crucial in determining PES, as suppliers generally have more flexibility to adjust production in the long run.

Understanding these factors is essential for analyzing market dynamics and predicting how supply will respond to price changes in various industries.