20. ( 1 pt). What is the main determinant of the price elasticity of supply? Exp
ID: 1161657 • Letter: 2
Question
20. ( 1 pt). What is the main determinant of the price elasticity of supply? Explain. The ease of shifting resources to alternative uses is the main one. ) is often a critical factor affecting the ease of substitution. The longer the time, the easier it is for producers to shift resources into production and increase the quantity supplied. The more time the firm has to adjust to a change in price, the greater the elasticity of supply 21. (extra points). Draw three supply and demand graphs that illustrate the effect of time on the elasticity of supply using the below graphs. The three graphs should show: (a) the immediate market period; (b) the short run; and (c) the long run. (a) immediate market (b) the short run (c) the long run 22 ( 2 pts) Explain how the price elasticity of supply is related to the prices of antiques and gold. The supply of antiques and gold is relatively (elastic, inelastic). There is little or no change in quantity supplied to a change in price. As a consequence, increase in demand will often cause large changes in price in the case of antiques. Gold is highly (volatile, stable) in price because small increases or decreases in demand can cause large changes in price. (Visit www.goldprices.com and see how gold prices (US $ per ounce) has changed over time.) 23. (2 pts) For the following three cases, use a midpoints formula to calculate the coefficient for the identify the type of relationship between the two products. cross elasticity of demand and (a) The quantity demanded for product A increases from 30 to 40 as the price of product B increases from $0.10 to $0.20. Coefficient:Relationship: (substitute. complementary, independent) relationship increases from $5 to $10. Coefficient: $25 to $30. (b) The quantity demanded for product A decreases from 3000 to 1500 as the price of good B Relationship: relationship (b)The quantity demanded for product A remains 400 units as the price of product B increases from Coefficient: Relationship: (substitute, complementary, independent) relationship 24. ( 3 pts). Use the information in the table below to identify the income elasticity type of each of the following products, A and B. Percent change Income Percent change in quantity e elasticity Negative income(e.g., -6) means decreases in income. What does it mean if the income elasticity coefficient is negative? (Explanation / Answer
ans21.
various determinants of price elasticity of supply are as follows:-
i) Time period. Time is the most significant factor which affects the elasticity of supply. If the price of a commodity rises and the producers have enough time to make adjustment in the level of output, the elasticity of supply will be more elastic. If the time period is short and the supply cannot be expanded after a price increase, the supply is relatively inelastic.
(ii) Ability to store output. The goods which can be safety stored have relatively elastic supply (durable goods) over the goods which are perishable and do not have storage facilities.
(iii) Factor mobility. If the factors of production can be easily moved from one use to another, it will affect elasticity of supply. The higher the mobility of factors, the greater is the elasticity of supply of the good and vice versa.
(iv) Nature Constraints.The nature world also places restrictions upon supply. Rubber trees, for example, take 15 years to grow. So it is not possible to increase the supply of rubber overnight. hence, if there are natural constraints then supply is inelastic and vice-versa.
(v) Length of Production Period.The law of supply assumes that changes in price will produce an immediate effect in the quantity supplied. This may be theoretically correct. However, this is not possible in reality for many products.Production is a time and resource consuming process. Hence, it cannot be scaled up or down with that much ease. In many cases, the time required for production stretches to many months or even years. Hence, there is a lagging effect on supply. thus, Products whose production times take longer have relatively inelastic supply compared to those products where the production time is less.
(vi) Marginal Cost of Production.The law of supply also assumes that the profitability of the supplier does not change with the number of units sold. That is not the case. In reality, we have something called the economies of scale and diseconomies of scale. This influences the marginal cost of production.Hence, it may sometimes make economic sense to sell more whereas at other times, it may make more economic sense to sell less! Because producers consider marginal cost of production while making their decisions, it has become an important determinant in the elasticity of supply. thus, if MC is high, supply is inelastic and vice-versa.
note: the blank in 21 question is TIME. thus, time is the most imp. determinant of price elasticity of supply.
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