ECON 202 1nd Edition Lecture 12 Outline of Last Lecture I. Elasticitya. Price Elasticity of Demandi. Determinants of Price Elasticity of Demandb. Other Demand ElasticitiesOutline of Current Lecture II. Elasticitya. Price Elasticity of Supplyi. Elasticity of Labor SupplyIII. Price Controlsa. Ceilings and Floorsb. Minimum Wage ModelCurrent LectureElasticityPrice Elasticity of Supply- Measures the responsiveness of quantity supplied to a change in the price of a goodES=% ∆ QS% ∆ PIf ES > 1 then supply is elasticIf ES < 1 then supply is inelastic- Most important determinant of supply elasticity is timeo The longer a price change remains in effect the greater the price elasticity of supplyExample:Elasticity of Labor SupplyThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.ES L=% ∆ hoursworked% ∆ wageElasticity of labor supply is usually around 0.1 – 0.3 and is typically inelasticPrice ControlsPrice Ceiling – an artificially imposed maximum price above which price is not permitted to riseThis situation creates a shortage. Some consumers are “better – off” but manyconsumers are left wanting of a good. Sellers are also not “better – off”Price Floor – an artificially imposed minimum price below whichprice is not permitted to fallThis situation creates a surplus. Some suppliers are “better – off” butmany have lost customers and are left with excess goods.Minimum Wage Model – low skilled labor marketIf minimum wage is above the equilibrium price it raisesunemploymentA wage ceiling burden employers with fixing thesocioeconomic problem of low-income families (incomeversus expenses)Earned Income Tax Credit – easier to identify low income familiesand may do a better job helping them specifically then raising theminimum wagePriceQuantitySDP*PCQCSQ*QCDPriceQuantitySDP*PFQFDQ*QFSWageHours of LaborSDW*$7.25L’L*L’’If minimum wage is raised large companies such a McDonalds probably wont fire employees, but will slow down their hiring
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