[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

PRICE OF SEMICONDUCTORS
Excess-capacity region
Figure 4.5
Full-capacity
region
Supply of
semiconductors
QUANTITY OF SEMICONDUCTORS
CHANGING ELASTICITY ALONG A
SUPPLY CURVE
When output is low and many machines are idle, a
small change in price can lead to a large increase in
quantity produced, so the supply curve is flat and
elastic. When output is high and all machines are
working close to their limit, it takes a very large price
change to induce even a small change in output; the
supply curve is steep and inelastic.
elasticity; and in the extreme case of a horizontal supply curve, the curve
is said to be perfectly elastic, or to have infinite elasticity.
Table 4.2 summarizes the different cases for the price elasticity of
supply. Paintings by Rembrandt, who died in 1669, and new songs by John
Lennon, who died in 1980, have a zero elasticity of supply because no more
original Rembrandts can be produced or Lennon songs written. The supply
elasticity of labor is estimated to be low; a 1 percent increase in wages
leads to a less than 1 percent increase in the total supply of labor. The elasticity
of some agricultural crops, such as spinach, is estimated to be greater
than 1 because resources (mainly land) used for growing spinach can relatively
easily be switched to growing other crops if the price of spinach
falls. Finally, the supply of a music CD is close to being infinitely elastic.
While producing a greater number of different CDs may require that new
artists be developed, new songs be written, and new recording studios be
built, a CD, once recorded, can easily be copied at little additional cost.
Just as the demand elasticity varies at different points of the demand
curve, so too the supply elasticity varies at different points on the supply
curve. Figure 4.5 shows a typical supply curve in manufacturing—
perhaps a semiconductor manufacturer. At very low prices, the semiconductor
plant is just producing enough to cover its operating costs. Some
plants may shut down. Under these circumstances, a small increase in
the price of semiconductors elicits a large increase in supply. The supply
curve is relatively flat (elastic). But eventually, the plant will reach full
capacity, as the company uses three shifts of workers a day to run it around
the clock. At this point, it may be very hard to increase supply further, so
Table 4.2
PRICE ELASTICITY OF SUPPLY
Effect on Quantity
Supplied of 1%
Elasticity Description Increase in Price Examples
Zero Perfectly inelastic Zero Works by Rembrandt
(vertical supply curve)
Between 0 and 1 Inelastic Increased by less Labor
than 1%
1 Unitary elasticity Increased by 1%
Greater than 1 Elastic Increased by more Spinach
than 1%
Infinite Perfectly elastic Infinite increase A CD recording
(horizontal supply curve)
84 ∂ CHAPTER 4 USING DEMAND AND SUPPLY