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.
In relation to the time period of investment, the concept of price elasticity of supply suggests that the elasticity of supply tends to vary depending on the length of time available for producers to adjust their production levels.
In the short run, when the time period is relatively limited, the supply of a good or service is typically inelastic. This means that producers are unable to quickly adjust their production levels in response to changes in price. For example, if the price of a specific raw material used in production increases suddenly, producers may not be able to immediately find alternative suppliers or adjust their production processes, resulting in a relatively small change in quantity supplied.
On the other hand, in the long run, when producers have more time to adjust their production processes and make necessary investments, the supply becomes more elastic. This means that producers can more easily respond to changes in price by adjusting their production levels. For instance, if the price of a good increases significantly over time, producers can invest in expanding their production capacity, hiring more workers, or adopting more efficient production techniques, leading to a larger change in quantity supplied.
Overall, the time period of investment plays a crucial role in determining the price elasticity of supply, with shorter time periods resulting in relatively inelastic supply and longer time periods leading to more elastic supply.