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 resource allocation, the concept of price elasticity of supply helps us understand how quickly and easily producers can adjust their output in response to changes in price.
In the short run, when the time period is relatively short, the supply of a good or service is usually 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 increase their output due to limited resources or production capacity.
In the long run, when the time period is longer, the supply of a good or service becomes more elastic. This means that producers have more flexibility to adjust their production levels in response to changes in price. For example, if the price of a specific raw material increases over time, producers may be able to invest in new technologies or expand their production facilities to increase their output and meet the higher demand.
Overall, the concept of price elasticity of supply helps us understand how the time period of resource allocation affects the ability of producers to adjust their output in response to changes in price.