Answer to Question #213826 in Economics for Bora

Question

“For supply to respond to an increase in demand the supplier must be aware that demand has

indeed increased, however supply may not respond immediately to the change in demand”, Describe the 

factors that may attribute to this situation.

Answer 1

The price elasticity of supply is the percentage change in the quantity offered as a result of a one-percent change in price. If the price increases, then the elasticity of supply is usually positive since the higher price will stimulate producers to increase the production of the good.

Elasticity refers to a specific time frame, so for most products, it is important to distinguish between short-term and long-term elasticity coefficients. So, for many consumer goods, demand is more elastic over a long period of time than not a short one. This is due, firstly, to the fact that people need time to change their consumption habits (for example, to stop drinking coffee or quit smoking), and secondly, to the fact that the demand for one product can be associated with the stock of consumers of another substitute product. For durable goods (cars, sophisticated household appliances), demand is more elastic in the short term, since the total stock of each product at consumers is greater than the annual volume of their production. As a result, a small change in the total stock that consumers want to own can lead to a large percentage change in the volume of purchases.