Duncan,
Proof of elasticity of supply having different elasticities depending
whether it intersects the x or y axis does not concern me.
It is the rather unusual scenario that if the straight line supply curve,
which passes through the vertical axis, is steeply sloping has a specific
tax imposed on it, then any straight line demand curve that is drawn through
these two schedules produces the following very unusual result :
1 supply is elastic
2 the incidence of the tax falls mainly on the supplier.
Compare this to a flat supply curve passing through the horizontal axis with
the same level of specific tax imposed as in the example above. Now the
incidence of the tax falls mainly on the consumer. This is contrary to all
the textbook info I have ever read.
The only conclusion I can come to is that the elasisticity of demand varies
along the demand curve i.e. it is elastic as it nears the vertical axis and
is inelastic as it nears the horizontal axis. This factor swamps the effect
of the elasticity of supply. That idea came to me at 6 am this morning - now
that really is sad.
John Eveson.
----- Original Message -----
From: "Duncan Williamson" <[log in to unmask]>
To: <[log in to unmask]>
Sent: Saturday, May 10, 2003 7:47 AM
Subject: Re: Price Elasiticity of supply
> John,
>
> You need to send away this student with the following task: prove it!
>
> Get the student to build a series of simple examples with numbers on them
> that will either prove or disprove his point.
>
> What I think is happening is that this student has conceptualised from
> empty supply schedules: just a graph with no quantity values and no price
> values and then decided that if the supply curve passes through the Y
axis,
> then 'x' is the case ...
>
> Student should then report back to your group and be prepared to take some
> flak and/or heaps of praise!
>
> Duncan Williamson
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