I am learning the definition of the term \"PERFECTLY ELASTIC\". Here is a defini
ID: 1247652 • Letter: I
Question
I am learning the definition of the term "PERFECTLY ELASTIC". Here is a definition I found for it on the web:An elasticity alternative in which infinitesimally small changes in price cause infinitely large changes in quantity. In other words, quantity is hyper, super, infinitely responsive to price. Any change in price, no matter how small, triggers an infinite change in quantity.
I read that in such a situation the supply curve ( the curve where the vertical side is the price, and the horizontal side is the quantity supplied to the market) will be perfectly horizontal. This implies that if the price would go up, the suppliers would refuse to sell anything. This makes no sense to me.
I have two economics textbooks,and in one of them they said the horizontal line should be thought of as the minimum price demanded by the suppliers. Below that price, the suppliers will refuse to sell even one product. But above that price, the suppliers will continue to sell as many units as they sold before.
Yet my other textbook disagreed, and -pointing to the horizontal curve-said that should the price rise, suppliers will not sell anything.
Has anyone figured this out?
Explanation / Answer
When you have an item that is perfectly elastic, a small change in price will lead to a large change in the quantity supplied. At a certain price the supplier will supply any quatity of the item and at any price above that they will supply an infinite amount of the product (or always supply the product). Now at any price below that certain price, lets just say $4, at any price below $4 the supplier will refuce to supply the item. This makes the curve horizontal at the price of $4 or whatever the price of the item is, this is when elasticity equals infinity. A curve is vertical when it is perfectly inelastic (which simply means that there are only certain number of the items available, for example beachfront property, you can never create more beachfront property.). This means that at any price the quantity will not change. This is when elasticity is zero. Hope this helps.
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