Factors That Affecting Elasticity Of Supply Economics Essay

Factors That Affecting Elasticity Of Supply Economics Essayharmonize to (HASHIM ALI,1999, page 40), set snatch of furnish is basic onlyy sum the responsiveness of the quantity supplied referable to a change in equipment casualty.The factors that affecting compromisingity of supply ar whether the product is perishable or not. In other words, if the product is perishable, thither root when there is change in worth, it substance abuse affect the quantity supplied. Hence, the supply is inelasticFor fount fruits, it is because fruits are perishable.The moment determinant is the time. in that respect are two time of time which are the short run and the capacious run. In the short run, the supply go forth be inelastic. Its because, the supplier cant ontogeny the supply of a product immediately due to a change in set. Where by in the long run, suppliers are able to emergence their product, because they concur more time to produce more. And therefore the supply is elastic. For example in the short run, the bell of the laptop increase in the market price. However, the supplier of laptop cant increase their supply immediately due to a short run.In the long run, the supplier have more time to produce more laptop due to more time to produce laptop.PART BBusinesses can use price elasticity to settle on their pricing strategy.By using the price elasticity, they can know whether the darlings that they are dish outing is elastic or inelastic. If the keen that they are selling is inelastic, for example necessities, therefore they can set a high price. It is because if the good is inelastic, the change in price wont effect the change in imply. In other words, consumers are not that responsive due to a change in price.And if the good is elastic, such as luxuries goods or goods that have several substitutes, therefore the supplier cant set a high price. It is because the price is elastic, in other words the consumers are responsive due to a change in pric e of the good.Thats how the business use the elasticity concept to decide the pricing strategy.Question 3PART ASupply of a product keep up out increases caused by the technology are getting more advance. As technology has increases, therefore to produce a good impart be easier and faster, hence to higher supply of that particular product.For example a textile ships beau monde used to produce their goods by manually (by human or workers) and they manage to produce 100pcs of the good per month. In the future, as the technology increases, the quantity of the good produced increases to 300pcs each month.. hence the supply of the good increases.Second occasion that might affect the supply of a good give increase is the intervention from the government by giving subsidies to the suppliers. By giving subsidies to the suppliers, it tends to reduce their cost of production. Therefore, higher profit will earned and motivate the suppliers to supply more of the good.For example a cost o f production to produce a good is RM500, the company manage to sell at RM550 each good and earned RM50 for profit this is before any subsidies from government. by and by a while, the government decided to give subsidies to the business. Hence, the cost of production of the good slacks to RM450. the business still sell the product for RM550 entirely now, RM100 is earned for the profit. Therefore, the higher the profit, will motivate the supplier to supply more.Third reason that will increase a supply of a product is the price of the good it self. When the price of the good increases in the market, therefore the supplier motivated because no they can earn more revenues and get higher profit compared to before the price increased.For example the price of a take was RM100 in 2009 and the supplier of the chair supply at 100 quantities and earn RM10,000 revenues. In 2010, the price if the chair has increases to RM120. now while the price increased, the supplier will definitely increa se their quantity supplied of chair maybe to 130(or more) and they can get RM15,600 revenues which is a good deal more compared to the previous quantity.(HASHIM ALI,1999,PAGE 37)PART BPrice floor is a price that set by the government above the correspondence price and the price set b the suppliers are not well-grounded if they set lower than the price the set by the government.. its actually to help those suppliers to get higher income. Because of the price of the good is higher now, and therefore the supplier will produce more. However, at the end, the rent for the good will decrease and therefore, dissipation occur. This is how its effect the rationing function of prices and distort resource allocation. The graph infra will shows the plain caused by the price floor.QuantityPriceDSEquilibrium priceP0Q0QdPf surplusQs0The graph above shows that when there is price floor set by the government, the demand will stop until Qd and there fore surplus occur. Hence this occur, supplie r cant manage to sell all their product, and therefore, black market will occur(sell lower price illegally).Whereby price ceilings is also price that set by the government. Its the maximum price that seller can charge to consumers. Lower than the price ceiling is legal and other than is not. The objectives of government by doing this is to help those consumers that cant afford to corrupt their essential good. The graph below will shows the price ceiling.SDEquilibrium priceQ0P0QuantityPriceQsQdPcshortage0The graph above shows that when there is a price ceiling(Pc) set by the government, the price is down the stairs the equilibrium price. in other words, the price is cheap at the moment. however, because of the price has reduced, the suppliers will feel that its not moneymaking and therefore they are not motivated to produce more. Therefore the quantity supply stops at Qs. Hence, lack of supply and high demand due to a shortage.(McConnell,2009,page 59-62)Question 6PART AConsumer su rplus is basically means its benefit for the consumers, as they are able to pay higher price for a particular good, but in fact the actual price is lower than what they willing to pay. In other words, the consumers are able to pay above the equilibrium price. For example bathroom willing to buy a sport shoes at RM200, whereby the actual price of the sport shoes is RM150, and there fore RM200-RM150= RM50 is johns surplus as consumer.The graph below will show where is the consumer surplusDEquilibrium storeyQ0P0Consumers surplusQuantity demandedFor good ZPrice for good ZThe graph above shows the consumer surplus at the triangle shape whereThe actual price is at P0, and even though the price is order to be at P0,the consumers are willing to pay above the P0 which is higher and therefore, consumers surplus occur.Producer surplus is actually a benefit to the manufacturer of a particular good to earn more than what they jut out to earn. For example suppose to be good A is at RM5 in ma rket price, but john only plan to sell good A for only RM3(has cover the cost of production). therefore RM5-RM3=RM2 is johns producer surplus as an producer.SPrice for good ZQuantity supply for good ZProducer surplusEquilibrium price = P0Q0P0The graph above shows that the producer surplus is actually under the equilibrium price which means the producers are willing to sell at lower price but in fact, the equilibrium price for good Z is at P0, and therefore, the producers surplus occur.(McConnell,2009,page 126-127).PART BAccording to(HASHIM ALI,1999, page 2-3) basically there are three economic concepts. Which are scarcity, choice and opportunity cost. Where as the PPF or production possibilities frontier is to shows a possible combination with in two goods.The PPF graph below will explain the 3 economic concepts.LaptopSugar010753211 2 3 5 6 7ABCDEFBasically, scarcity means there are un peculiar(a) wants and limited resources. And to explain this concept by using this Production Poss ibilities Frontier(PPF), the graph shows that it is impossible to actually produce 7 sugar and 10 laptop. because when 7 sugar is produced there is only 1 laptop can be produced and its caused by the limited resources. Which at the end will bring to a choice. Choice means, the consumer will to chose to have more on sugar or laptop. if they want more sugar, lesser laptop they will get and otherwise. Due to this the third concept will occur where by opportunity cost means something has to be forgone in order to get the best alternative. For example, in this graph, if the consumers want to get 6 of sugar not 5, there fore he/she has to forgone 1 laptop in order to get 6 sugar. The forgone 1 laptop is the opportunity cost.Question 5PART AA decrease in demand will SHIFT the demand curve to the left, there are several factors that will decrease the demand. reek and fashion, a change in income, changes in population, changes in price of related goods(either complementary goods or substitu tes goods), increase of advertisements, introduction of new product, social and economic conditions, festive seasons, speculation.Price of good AD0D1Quantity demanded forgood AThe graph above shows the decrease in demand. The demand curve SHIFTED to the left from D0 to D1 and it is caused by the factors that mentioned earlier.Where as the decrease in quantity demanded will caused the MOVEMENT along the demand curve to move upward which means not a shift. The ONLY factor that will move the demand curve upward is the price of the good it self.Quantity demanded for good APrice for good AD0BAQ0Q10P0P1The graph above shows that when there is a decrease in quantity demanded, this is ONLY caused by the monetary value of good A has increased from P0 to P1 therefore caused the quantity demanded to decreased from Q0 to Q1 as well as the dejection upward from point A to point B. The ONLY factor that due to this movement along the demand curve is the PRICE of the good it self. (HASHIM ALI,1999 , page 22-25)PART BAccording to (HASLIM ALI, 1999, page 32) Income elasticity of demand basically means the measure of the responsiveness of demand in a particular good due to a change in income of the consumers.the income elasticity of demand is measured by percentage. Here is the formula to target income elasticity of demandincome elasticity of demand the change in quantity demanded over the change inincome of the consumers.= Q1-Q0 x 100( change in quantity demanded)Q0______(over)Y1-Y0- x 100(change in income of the consumers)Y0Keys Q1( new quantity demanded)Q2(original quantity demanded)Y1(new income of consumers)Y0(original income of consumers)There are 3 degrees or responses of income elasticity1.positive2.negative3.zeroThe positive degree of income elasticity of demand can be describe more or classified into 3 more parts elastic (YED or income elastic of demand is 1), unit(YED=1), and inelastic(YED