Explain the price elasticity of supply for the following cases:? a. An increase

Question

Explain the price elasticity of supply for the following cases:?

a. An increase in snowfall in Alberta this winter leads to a huge jump in the selling price of snow blowers.

b. The price of a kilowatt of electricity in Ontario is the same during periods of high electricity demand as during periods of low electricity demand.

c. Fewer people want to fly during November than during any other month. The airlines cancel about 10 percent of their flights as ticket prices fall about 20 percent during this month.

d. Owners of vacation homes in Sandbanks rent out their homes during the summer. Due to the soft economy this year, a 30 percent decline in the price of a vacation rental leads more than half of homeowners to occupy their vacation homes themselves during the summer.

Explanation / Answer

b. The price of a kilowatt of electricity in Ontario is the same during periods of high electricity demand as during periods of low electricity demand.

Price elasticity of supply (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.

The elasticity is represented in numerical form, and is defined as the percentage change in the quantity supplied divided by the percentage change in price.

When the coefficient is less than one, the said good can be described as inelastic; when the coefficient is greater than one, the supply can be described as elastic. An elasticity of zero indicates that quantity supplied does not respond to a price change: it is "fixed" in supply. Such goods often have no labor component or are not produced, limiting the short run prospects of expansion. If the coefficient is exactly one, the good is said to be unitary elastic.

The quantity of goods supplied can, in the short term, be different from the amount produced, as manufacturers will have stocks which they can build up or run down.

Availability of raw materials

For example, availability may cap the amount of gold that can be produced in a country regardless of price. Likewise, the price of Van Gogh paintings is unlikely to affect their supply.

Length and complexity of production

Much depends on the complexity of the production process. Textile production is relatively simple. The labor is largely unskilled and production facilities are little more than buildings

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