Economics Elasticity Of Supply Questions Medium
The difference between elastic and inelastic supply lies in the responsiveness of the quantity supplied to changes in price. Elastic supply refers to a situation where a small change in price leads to a relatively larger change in the quantity supplied. In other words, the supply is highly responsive to price changes. On the other hand, inelastic supply refers to a situation where a change in price has a relatively smaller impact on the quantity supplied. In this case, the supply is less responsive to price changes.
Elastic supply occurs when producers can easily adjust their production levels in response to price changes. This typically happens when there are readily available resources, flexible production processes, and low production costs. For example, if the price of a certain crop increases, farmers with elastic supply can quickly increase their planting and harvesting activities to take advantage of the higher prices.
In contrast, inelastic supply occurs when producers are unable to adjust their production levels easily in response to price changes. This can happen when there are limited resources, fixed production processes, or high production costs. For instance, if the price of a rare and specialized medical equipment increases, the supply may remain relatively unchanged as it takes time and resources to produce more of such equipment.
The concept of elasticity of supply is important in understanding how changes in price affect the quantity supplied in a market. It helps economists and policymakers analyze the responsiveness of producers to price changes and predict the potential impact on market equilibrium, consumer welfare, and producer profits.