Answer to Question #213828 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

In conditions of free competition, the interaction of market demand and market supply adjusts the price until the moment when the amount of demand and the amount of supply coincide.

An increase in demand increases the equilibrium price and the equilibrium quantity of the product. There is a direct relationship between changes in demand and changes

equilibrium price and equilibrium quantity of the product.

The supply price elasticity 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.