|
|
ANDEAN COMMUNITY: The Andean Community (CAN) is a subregional organization endowed with an international legal status, which is made up of Bolivia, Colombia, Ecuador, Peru and Venezuela. The main objectives of the Andean Community are to promote the balanced and harmonious development of the member countries under equitable conditions, to boost their growth through integration and economic and social cooperation and to enhance participation in the regional integration process with a view to the progressive formation of a Latin American common market. The Andean Community started operating on August 1, 1997 with a General Secretariat, whose headquarters are in Lima (Peru), as its executive body.
Visit the GLOSS*arama
|
|
|
|
                           PERFECTLY ELASTIC: An elasticity alternative in which infinitesimally small changes in one variable (usually price) cause infinitely large changes in another variable (usually quantity). Quantity is infinitely responsive to price. Any change in price, no matter how small, triggers an infinite change in quantity. This characterization of elasticity is most important for the price elasticity of demand and the price elasticity of supply. Perfectly elastic is one of five elasticity alternatives. The other four are perfectly inelastic, relatively elastic, relatively inelastic, and unit elastic. | Alternative | Coefficient (E) | | Perfectly Elastic | E = ∞ | | Relatively Elastic | 1 < E < ∞ | | Unit Elastic | E = 1 | | Relatively Inelastic | 0 < E < 1 | | Perfectly Inelastic | E = 0 |
Perfectly elastic means an infinitesimally small change in price results in an infinitely large change in quantity demanded or supplied. This elasticity alternative exists when the price is fixed, that is, an infinite range of quantities is associated with the same price. Perfectly elastic demand can occur, in theory, when buyers have the choice among a large number of perfect substitutes in the consumption of a good. In an analogous way, perfectly elastic supply can occur when sellers have the choice among a large number of perfect substitutes in the production.The chart to the right displays the five alternatives based on the coefficient of elasticity (E). In technical shorthand (often used by economists who have really tiny fingers), the coefficient of elasticity (E) is given as: E = ∞ This technical shorthand works for both the price elasticity of demand and the price elasticity of supply, because the negative value of the price elasticity of demand is ignored. If the negative sign is not ignored, then the price elasticity of demand is given by E = -∞. Two Curves| Perfectly Elastic Curves |  |
Perfectly elastic demand and supply are best understood and more easily seen with pictures. The blank graph presented here is ready and willing to display a perfectly elastic demand curve and a perfectly elastic supply curve. All that is needed is a click of the corresponding buttons labeled "Demand" and "Supply."Both of the curves revealed by the button-clicking are horizontal, perfectly horizontal, with absolutely no slope. They are perfectly flat. This is THE hallmark characteristic of perfectly elastic. Being perfectly horizontal means that, for a given price, buyers buy or sellers sell any quantity. The focus, in other words, of a perfectly elastic curve is on price not quantity. If the price should change by an infinitesimally small amount, then quantity explodes to an infinitely large amount or drops to zero. How about a couple of examples to illustrate perfectly elastic demand and perfectly elastic supply? However, before providing examples, note that use of the word "perfectly" means that the perfectly elastic alternative is an ideal, theoretical extreme that does NOT actually exist in the real world. As such, the hypothetical, fabricated examples provided here are intended only to illustrate. DemandThe key for perfectly elastic demand is that the good has a large number of very, very, very close (that is, perfect) substitutes-in-consumption readily available. One hypothetical example is paper clips produced by the Quad D company. These are standard, run-of-the-mill, nothing fancy, metal paper clips, just like those offered by hundreds of companies. A Quad D paper clip is indistinguishable from any other paper clip made by any other company.As such, the demand for Quad D paper clips is perfectly elastic. The Quad D company sells all of the paper clips that it wants at a specific price. If Quad D lowers the price of its paper clips by an infinitesimally small amount, then an infinite number of buyers who might have bought the other paper clips buy Quad D paper clips instead. If Quad D should raise the price of its paper clips by an infinitesimally small amount, then buyers buy paper clips made by other companies. Of course, they have no reason to raise their price because they can sell all that they want at the existing price. SupplyThe key for perfectly elastic supply is that the good has a large number of very, very, very close (as in perfect) substitutes-in-production readily available. Any quantity of the good can be produced at the same production cost and price because the productive resources can be easily (as in perfectly) switched back and forth between other goods. A hypothetical example of perfectly elastic supply comes with a generic cheese sandwich, such as that sold by Manny Mustard and thousands of others. The production cost of combining labor, kitchen utensils, mayonnaise, cheese, and bread are one dollar per sandwich. This cost is the same for one sandwich or one billion sandwiches. There is no increasing opportunity cost. There are no economies of scale.As such, the supply of generic cheese sandwiches is perfectly elastic. If buyers pay a buck each, one dollar, they get as many generic cheese sandwiches as they want. If buyers should lower the price they offer for generic cheese sandwiches by an infinitesimally small amount, then sellers do not supply any generic cheese sandwiches. If buyers should raise the price they offer for generic cheese sandwiches by an infinitesimally small amount, then sellers supply an infinitely large amount. Of course, buyers have no reason to offer a lower price because they can buy all that they want at the existing price.
Recommended Citation:PERFECTLY ELASTIC, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: May 3, 2024].
Check Out These Related Terms... | | | | | | | | | | |
Or For A Little Background... | | | | | | | | | | |
And For Further Study... | | | | | | | |
Search Again?
Back to the WEB*pedia
|
|
|
BLACK DISMALAPOD
[What's This?]
Today, you are likely to spend a great deal of time flipping through mail order catalogs looking to buy either clothing for your pet dog or an ink cartridge for your printer. Be on the lookout for spoiled cheese hiding under your bed hatching conspiracies against humanity.
Your Complete Scope
This isn't me! What am I?
|
|
|
The first U.S. fire insurance company was established by Benjamin Franklin in 1752 in Philadelphia.
|
|
|
"It is the mark of an educated mind to be able to entertain a thought without accepting it." -- Aristotle
|
|
ACBS
Accrediting Commission for Business Schools
|
|
|
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.
User Feedback
|
|
