Question

Use each of the following three terms in a sentence that gives an example of the term as it relates to supply: a. elastic b. inelastic c. elasticity of supply

Short answer

Supply can be elastic, inelastic, or measured by elasticity, showing how supply reacts to price changes.

Step-by-step solution

Understand 'Elastic' in Supply Context

When supply is described as 'elastic', it means that the quantity supplied responds significantly to changes in price. If the price of a product increases, and producers can increase the quantity supplied greatly, it is elastic. For example, 'The supply of t-shirts is elastic because manufacturers can quickly increase production when prices rise.'

Understand 'Inelastic' in Supply Context

A supply is termed 'inelastic' when the quantity supplied does not respond significantly to a change in price. This often occurs with products that take longer to produce or have limited resources. For example, 'The supply of diamonds is inelastic because they are rare and cannot be produced quickly to meet a change in demand.'

Define 'Elasticity of Supply'

Elasticity of supply measures how much the quantity supplied of a good responds to a change in price, indicating whether it is elastic or inelastic. For example, 'The elasticity of supply for corn is high due to adjustability in farming techniques, allowing farmers to respond to price changes efficiently.'

Key concepts

Elastic Supply

In the world of economics, when we talk about 'elastic supply', we are referring to how sensitive the quantity of a good or service produced is in response to price changes. When supply is elastic, even a small increase in price results in a significant increase in the quantity supplied. This responsiveness allows producers to adapt quickly to market needs.

For example, consider the production of t-shirts. Manufacturing t-shirts is relatively simple and fast. If the price rises, it's possible for manufacturers to ramp up their machines and increase output significantly. This ability to quickly scale up production means that the supply of t-shirts is elastic. Some characteristics of goods with elastic supply include:

• Easy and quick production processes.
• The availability of raw materials.
• Industries that can adjust labor and technology swiftly.

Inelastic Supply

Inelastic supply describes a situation where the quantity supplied changes very little in response to price changes. Even if the price goes up, producers may not be able to increase the quantity supplied much. This characteristic is often seen in goods that require extensive time and resources to produce.

Take diamonds as an example. Diamonds are rare and it takes a long time to mine them. Even if prices soar, mining companies cannot immediately increase output because of these constraints. Hence, the supply of diamonds is inelastic. Here are some features of inelastic supply:

• Long production timescales.
• Scarcity of resources.
• Limited technological advancements in production.

Supply and Demand

To understand elasticity of supply, it is essential to grasp the basic concepts of supply and demand. Supply refers to the quantity of a product that producers are willing to sell at various prices, while demand refers to the quantity that consumers are willing to buy. The intersection of supply and demand curves in a market determines the equilibrium price and quantity.

When the price changes, it affects the quantity supplied, depending on whether the supply is elastic or inelastic. Elasticity of supply measures this responsiveness. A high elasticity of supply indicates that producers can quickly adapt to price changes, often leading to a more competitive market. A few key points to remember about supply and demand:

• Supply and demand balance determine market prices.
• Price changes influence both supply and demand.
• Elasticity helps in predicting how supply will change in reaction to price shifts.