3.9:
Elasticity of Supply (ES)
The elasticity of supply measures the responsiveness of quantity supplied to changes in price. This concept helps quantify how much producers are willing and able to adjust their output when faced with price fluctuations.
It is calculated by dividing the percentage change in the quantity supplied by the percentage change in the price.
Elastic supply indicates that the quantity supplied is highly responsive to changes in its price. In such cases, even small price changes can lead to significant adjustments in the quantity supplied.
Consider trendy movie-themed t-shirts. When their prices increase, manufacturers can quickly increase production to meet the craze, showcasing elastic supply. Similarly, items like smartphones, books, and groceries also demonstrate elasticity.
In contrast, inelastic supply indicates that the quantity supplied is less responsive to price changes.
For instance, a rise in oil prices doesn't lead to an immediate increase in supply because extracting and refining oil is a complex and time-consuming process. Likewise, vintage items, agricultural goods, specialized medicines, and some essential commodities also show inelasticity due to production constraints or limited availability.
3.9 Elasticity of Supply (ES)
The elasticity of supply measures how responsive the quantity supplied of a good or service is to changes in its price. When supply is elastic, a small change in price leads to a proportionally larger change in quantity supplied. This indicates suppliers can easily adjust their production levels in response to price fluctuations. Conversely, when supply is inelastic, changes in price result in relatively smaller changes in quantity supplied, suggesting that suppliers have less flexibility in adjusting their production levels.
For example, the supply of commodities like wheat or rice may be elastic because farmers can adjust their planting and harvesting decisions relatively quickly in response to market price changes. In contrast, the supply of specialized goods like vintage wines or rare artworks may be inelastic because it takes time to produce or acquire these items, and their supply cannot easily be increased in response to price changes.
Understanding the elasticity of supply is crucial for businesses and policymakers as it helps predict how changes in price will affect the quantity supplied and informs decisions about pricing strategies, resource allocation, and market regulation.