Economics Elasticity Of Supply Questions
The difference between price elasticity of supply and price elasticity of demand in relation to the availability of substitutes lies in the direction of their relationship with the availability of substitutes.
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. When there are more substitutes available for a product, the demand becomes more elastic, meaning that consumers are more likely to switch to alternative products if the price of the original product increases. On the other hand, when there are fewer substitutes available, the demand becomes less elastic, indicating that consumers are less likely to switch to alternatives even if the price increases.
Price elasticity of supply, on the other hand, measures the responsiveness of quantity supplied to a change in price. When there are more substitutes available for inputs or resources used in production, the supply becomes more elastic. This means that producers can easily switch to alternative inputs or resources if the price of the original input increases. Conversely, when there are fewer substitutes available, the supply becomes less elastic, indicating that producers have limited options to switch inputs or resources even if the price increases.
In summary, the availability of substitutes affects the price elasticity of demand and supply differently. For demand, more substitutes make it more elastic, while for supply, more substitutes make it more elastic as well.