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Elasticity of Supply, Economics Video Lecture | Business Economics for CA Foundation

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FAQs on Elasticity of Supply, Economics Video Lecture - Business Economics for CA Foundation

1. What is elasticity of supply in economics?
Ans. Elasticity of supply in economics refers to the responsiveness of the quantity supplied of a good or service to a change in its price. It measures the percentage change in quantity supplied divided by the percentage change in price. High elasticity of supply indicates that the quantity supplied is highly responsive to price changes, while low elasticity suggests a less responsive supply.
2. How is elasticity of supply calculated?
Ans. The elasticity of supply is calculated by dividing the percentage change in quantity supplied by the percentage change in price. The formula for elasticity of supply is: Elasticity of supply = (Percentage change in quantity supplied / Percentage change in price) If the result is greater than 1, supply is elastic. If it is less than 1, supply is inelastic. If it is equal to 1, supply is unitary elastic.
3. What factors affect the elasticity of supply?
Ans. Several factors influence the elasticity of supply. Some of the key factors include: - Availability of inputs: If inputs required for production are readily available, supply tends to be more elastic as producers can easily increase production. - Time period: In the short run, supply tends to be inelastic as producers cannot quickly adjust their production levels. In the long run, supply becomes more elastic as producers have more flexibility to adjust production. - Spare production capacity: If producers have excess production capacity, supply can be more elastic as they can easily increase output. - Mobility of resources: If resources can be easily reallocated from one production to another, supply tends to be more elastic. - Nature of the product: Commodities with easily substitutable inputs or production processes tend to have more elastic supply.
4. What are the types of elasticity of supply?
Ans. There are three types of elasticity of supply: - Elastic supply: When the percentage change in quantity supplied is greater than the percentage change in price, supply is elastic. This means that producers are highly responsive to price changes. - Inelastic supply: When the percentage change in quantity supplied is less than the percentage change in price, supply is inelastic. This indicates that producers are less responsive to price changes. - Unitary elastic supply: When the percentage change in quantity supplied is equal to the percentage change in price, supply is unitary elastic. This means that producers are proportionately responsive to price changes.
5. Why is the elasticity of supply important for businesses and policymakers?
Ans. The elasticity of supply is crucial for businesses and policymakers as it helps in understanding how changes in price affect the quantity supplied. It provides insights into the responsiveness of producers to price fluctuations, which can impact market equilibrium, production decisions, and pricing strategies. High elasticity of supply indicates that producers can quickly adjust their output to meet changes in demand, while low elasticity suggests limited flexibility. Policymakers can use this information to assess the impact of taxes, subsidies, or regulations on supply and make informed decisions to achieve desired economic outcomes.
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