Good morning Ms. Teetaert and fellow
classmates, today I will be continuing the topic of elasticity. To be more
specific, I will be summarizing and explaining price elasticity of supply.
We are aware that the price elasticity of
demand measures the extent to which the quantity of a product demanded responds
to a change in price. Knowing this definition it is easy to get confused with
the definition of price elasticity of supply. The price elasticity of supply measures the extent that the quantity of
a product supplied responds to a change in price. It basically means that
it is a measure to show the responsiveness or reaction of the quantity supplied
of a good or service to a change in its price. Identifying the relationship
between price and quantity supplied is a good step in learning the price
elasticity of supply.
My first question after learning this was, “why does all this matter and how does it
benefit us?”
Well, the price elasticity of supply really
does help us because it tells us people how fast supply responds to the
quantity demand and price increase. For example, when there is an extremely
popular product out in stores therefore resulting it to be in short supply,
then this situation may cause the product’s price to increase. A very popular
product of 2013 was a mini LED flashlight which first sold for only $3.00 but
gradually as it got popular the price ended up increasing by ten/fifteen
dollars. The manufacturers of that
product will increase the supply to keep up with the demand, which only makes
sense. The higher the elasticity of supply equals the faster the increase of
supply when demand and price increase.
The people are not the only ones who
influence supply; the government also takes part in this. The government
impacts supply by subsidies, taxes, and regulation.
Subsidies are a government payment that
helps a business or market. An example of this would be how the government
funds some parts or all of an industry’s production. This is a fairly good
influence because it increases the supply of a good.
While subsidies are a positive, taxes are a
negative. Taxes are the government reducing the supply of some goods. The
government is putting an exercise tax on them. And finally, regulation is when
the government influences the price, quantity, or quality of a good. This may
raise costs and be negative for buyers.
If a supplier can compromise and come
quickly with solutions when price changes occur the supply is called ELASTIC,
if the cannot adjust to these price changes then the supply is called
INELASTIC. But if the price change results in a relational change in the
quantity supplied it is referred to as UNITARY ELASTIC SUPPLY.
There are a few factors that determine the
elasticity of supply. Time period happens to be one of them, supply may be more
elastic. A production company may not be able to change its factor inputs. In
agricultural industries the supply is determined by making planting decisions
months before. Another factor is the ability to substitute during production.
Sometimes it is quite easy to make substitutions for some products, but in
other cases it is hard. For example, gasoline.
The factor of the ability to store products is reasonable. If a
productions company has a lot of extra capacity then they should be able to
increase output quite quickly without a rise in costs making supply elastic.
Every business has to sit down and think
about how their production of goods or a service is going to benefit them and
how much money they will take in. Another question to consider is, how the total production is going to be
affected by the number of workers. Obviously thinking, the more workers the
quicker the job will be done. The expectation is that if there are two people
working in a production for rulers, the output should be more than if
there was one person working. The change in output from hiring one more worker
or unit of labour is called MARGINAL PRODUCT OF LABOUR. Price Elasticity of Supply: Factors Affecting It
Work Cited
Roy, Harold. "Price Elasticity of Supply." Price Elasticity of Supply. N.p., 10 Apr. 2009. Web. 17 Nov. 2014.
