Answer to Question #186011 in Microeconomics for fahmida

Question

 Hermes is a luxury designer brand. Among the one-of-a kind designer handbags it sells, one of its most  renowned styles is the Hermes Birkin made from rare crocodile skin. What kind elasticity do you think the  supply of these handbags would be like? Briefly explain why and sketch the supply curve.

Answer 1

Solution:

Hermes Birkin designer handbag is an example of a luxury product. The supply of the product is highly elastic, or a relatively elastic supply. This means that the percentage change in quantity supplied is more than the percentage change in price. It has a value greater than one of elasticity of supply, which indicates the sensitivity of supply to price. When its price increase, it will result in an increase in its supply and vice versa.

 

This is depicted by the below graph: