Economics Elasticity Of Supply Questions
Price elasticity of supply refers to the responsiveness of the quantity supplied of a good or service to changes in its price. It measures the percentage change in quantity supplied divided by the percentage change in price.
The concept of price elasticity of supply is closely related to the availability of substitutes. When there are readily available substitutes for a product, the supply tends to be more elastic. This means that producers can easily switch their resources and production towards the substitute goods in response to changes in price. As a result, the quantity supplied can change significantly in response to even small changes in price.
On the other hand, when there are limited or no substitutes available, the supply tends to be inelastic. In this case, producers are unable to easily switch their resources and production towards alternative goods. Therefore, the quantity supplied is less responsive to changes in price.
Overall, the availability of substitutes plays a crucial role in determining the price elasticity of supply. The more substitutes there are, the more elastic the supply becomes, and vice versa.