458110
Price Elasticity of Supply
- PRICE ELASTICITY OF SUPPLY= the responsiveness
of supply to changes in the price level
- Price elasticity of supply= % change in
quantity supplied / % change in price
- above 1= price elastic
supply
- e.g. pencils (you can easily produce a lot
more)
- e.g. pencils (you can easily produce a lot
more)
- below 1= price inelastic
supply
- e.g. agricultural products (because
they have a long growing cycle),
often comodoties
- e.g. agricultural products (because
they have a long growing cycle),
often comodoties
- above 1= price elastic
supply
- Factors affecting price elasticity of supply
- Time
- how quickly can suppliers respond to a change in
price? (if commodities then probably a long time, so
price inelastic supply)
- how quickly can suppliers respond to a change in
price? (if commodities then probably a long time, so
price inelastic supply)
- Raw Materials
- Some raw materials may be very scarce e.g.
oil so it could be difficult to increase supply
quickly when more oil needs to be found first
- Some raw materials may be very scarce e.g.
oil so it could be difficult to increase supply
quickly when more oil needs to be found first
- Availability of stock or stock-pilling
- Suppliers with stocks of finished goods can respond
quickly, provided products are not perishable
- Suppliers with stocks of finished goods can respond
quickly, provided products are not perishable
- Ease of
switching
between
alternative
production
- if suppliers can move production from one item to another they can respond quickly (e.g. printing football T-shirts for different clubs)
- if suppliers can move production from one item to another they can respond quickly (e.g. printing football T-shirts for different clubs)
- availability
of spare
capacity
- Can expand output more easily so would have price elastic supply
- Can expand output more easily so would have price elastic supply
- number of firms and ease at which new firms can enter the market
- new resources could easily enter a market so it would
be price elastic supply if new firms could easily enter
- new resources could easily enter a market so it would
be price elastic supply if new firms could easily enter
- ability to alter production methods
- if firms can quickly transfer to different methods they could
increase output easily (e.g. more capital intensive production)
- if firms can quickly transfer to different methods they could
increase output easily (e.g. more capital intensive production)
- Time
- COMMODITY= a good that is traded, but usually refers to raw materials or
semi-manufactured goods that are traded in bulk such as tea, iron ore, oil
or wheat. Often they are unbranded goods (homogeneous) where all firms'
products are bery similar and undistinguishable from each other.
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