Economics Elasticity Of Supply Questions
In the short run, the concept of elasticity of supply refers to the responsiveness of the quantity supplied to changes in price. It measures how sensitive the quantity supplied is to changes in price, and is calculated as the percentage change in quantity supplied divided by the percentage change in price.
If the quantity supplied is highly responsive to changes in price, the supply is said to be elastic. This means that a small change in price will result in a relatively larger change in quantity supplied. On the other hand, if the quantity supplied is not very responsive to changes in price, the supply is said to be inelastic. In this case, a change in price will result in a relatively smaller change in quantity supplied.
The elasticity of supply in the short run is influenced by factors such as the availability of inputs, production capacity, and time constraints. For example, if a firm has excess production capacity and can easily increase output in response to a price increase, the supply will be more elastic. However, if a firm is operating at full capacity and cannot quickly increase production, the supply will be more inelastic.
Understanding the elasticity of supply in the short run is important for businesses and policymakers as it helps predict how changes in price will affect the quantity supplied and ultimately impact market equilibrium.