elasticity of supply

Question 1

what is elasticity of supply

Answer 1

the responsiveness of the quantity supplied of a good or service by producers to a change in the good or service’s price

Question 2

What can producers do if supply is elastic? What happens to supply if supply of a product is inelastic?

Answer 2

If supply is elastic, producers can increase output without a rise in cost or a time delay.

Producers will struggle to change production in a given time if a product is inelastic.

Question 3

what is the formula?

Answer 3

percent change in quantity/percent change in price`

Question 4

values of elasticity

Answer 4

The supply curve is elastic if… Elasticity > 1
The supply curve is inelastic if… Elasticity < 1
The supply curve has unit elasticity if… elasticity = 1
the supply curve has perfect elasticity if…. = 0

Question 5

Factors that determine price elasticity of supply

Answer 5

Ability to store inventory
Nature of industry
Time

Question 6

Price Elastic Supply Explanation

Answer 6

Sellers are relatively sensitive to a price change. Law of Supply is strong. >1 e.g. Manufactured goods _ Fast to produce.

Question 7

Price Inelastic Supply Explanation

Answer 7

Sellers are not sensitive to a price change. Law of supply is weak. <1 e.g. Agricultural goods - Slow to produce.

Question 8

Perfectly Price Inelastic Supply Explanation

Answer 8

A change in price has no effect on quantity supplied. Law of supply does not apply. 0 e.g. Rare or Valuable/1:1 goods

Question 9

time determinant

Answer 9

if the producer can respond quickly to a price change then supply will be price elastic

in the immediate run, it may be difficult for a producer to to suddenly increase output

as time increases, producers will be able to obtain more inputs and expand output more easily and supply will become more price elastic

Question 10

nature of industry determinant

Answer 10

the supply of agriculture products tends to be relatively price inelastic while supply of manufacture goods is more price elastic

products such as wheat, wool require a reasonable amount of time to produce. if price of wheat increases, farmers cannot suddenly respond

manufactured goods are easy to produce. firms can quickly expand the output of computers, tablets in response to increase in price

Question 11

ability to store inventory

Answer 11

if a producer has the ability to store or warehouse its good, then it can respond fairly quickly to a change in demand and so supply would be relatively elastic

goods that are perishable, such as fresh furit, and vegatables, cannot be stored readily and so their supply would be relatively inelastic