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Curves which cut through the positive part of the quantity axis and have positive quantity supplied (Q = a) even if the price is zero have a > 0 and hence always have inelastic supply. Curves which go through the origin have a = 0 and hence have an elasticity of 1. When looking at the price elasticity of supply, there are five types.
In a manner analogous to the price elasticity of demand, it captures the extent of horizontal movement along the supply curve relative to the extent of vertical movement. If supply elasticity is zero, the supply of a good supplied is "totally inelastic", and the quantity supplied is fixed.
When the supply curve is perfectly elastic (horizontal) or the demand curve is perfectly inelastic (vertical), the whole tax burden will be levied on consumers. An example of the perfect elastic supply curve is the market of the capital for small countries or businesses.
On the other hand, [10] the money supply curve is a horizontal line if the central bank is targeting a fixed interest rate and ignoring the value of the money supply; in this case the money supply curve is perfectly elastic. The demand for money intersects with the money supply to determine the interest rate.
Economists use elasticity of demand to gauge how responsive consumers are to changes in price and income, but investors can also use elasticity of demand to help make more informed investing ...
In other words, when the supply curve is more elastic, the area between the supply and demand curves is larger. Similarly, when the demand curve is relatively inelastic, deadweight loss from the tax is smaller, comparing to more elastic demand curve. A tax results in deadweight loss as it causes buyers and sellers to change their behaviour.
If the linear supply curve intersects the quantity axis PES will equal zero at the point of intersection and will increase as one moves up the curve; [19] however, all points on the curve will have a coefficient of elasticity less than 1. If the linear supply curve intersects the origin PES equals one at the point of origin and along the curve.
In words, the convergent case occurs when the demand curve is more elastic than the supply curve, at the equilibrium point. The divergent case occurs when the supply curve is more elastic than the demand curve, at the equilibrium point (see Kaldor, 1934, page 135, propositions (i) and (ii).)