Factors That Affecting Elasticity Of Supply Economics Essay

Factors That Affecting Elasticity Of Supply Economics EssayAccording to (HASHIM ALI,1999, page 40), toll elasticity of sum is basically marrow the responsiveness of the amount of money supplied due to a transplant in equipment casualty.The factors that affecting elasticity of supply ar whether the product is perish sufficient or non. In other words, if the product is perishable, there shank when there is change in price, it wont affect the quantity supplied. Hence, the supply is inelasticFor manikin fruits, it is beca usage fruits ar perishable.The second determinant is the time. there atomic number 18 two time of time which are the short run and the long run. In the short run, the supply go out be inelastic. Its because, the provider put upt affix the supply of a product immediately due to a change in price. Where by in the long run, suppliers are able to derive their product, because they have more than time to stimulate more. And therefore the supply is elasti c.For example in the short run, the price of the laptop increase in the market price. However, the supplier of laptop jargoon 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 decide on their strict strategy.By using the price elasticity, they can know whether the good enoughs that they are selling is elastic or inelastic. If the good that they are selling is inelastic, for example necessities, therefore they can set a higher(prenominal) price. It is because if the good is inelastic, the change in price wont effect the change in lead. 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 price of the good.Thats how the business use the elasticity sentiment to decide the pricing strategy.Question 3PART ASupply of a product will increases caused by the engineering are getting more advance. As technology has increases, therefore to produce a good will be easier and faster, hence to higher supply of that particular product.For example a textile company 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 reason that might affect the supply of a good will 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 of product ion to produce a good is RM500, the company manage to sell at RM550 each good and earned RM50 for profit this is to begin with any subsidies from government. After a while, the government decided to give subsidies to the business. Hence, the cost of production of the good decreases to RM450. the business still sell the product for RM550 just now 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 r reddenues and get higher profit compared to before the price increased.For example the price of a hold 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 increase their quantity supplied of chair maybe to 130(or more) and they can get RM15,600 revenues which is much more compared to the precedent quantity.(HASHIM ALI,1999,PAGE 37)PART BPrice floor is a price that set by the government supra the residuum price and the price set b the suppliers are not legal 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 take aim for the good will decrease and therefore, surplus occur. This is how its effect the rationing function of prices and distort imaginativeness allocation. The represent below will shows the surplus caused by the price floor. amount of moneyPriceDSEquilibrium priceP0Q0QdPfsurplusQs0The 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, supplier c ant 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 otherwise is not. The objectives of government by doing this is to help those consumers that cant afford to buy their immanent 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 under 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 profitable 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 surplus is basically mea ns 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 john willing to buy a frolic 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 pointQ0P0Consumers 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 suppose 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 maker of a particular good to earn more than what they plan to earn. For example suppose to be good A is at RM5 in market price, but john only plan to sel l 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 probability cost. Where as the PPF or production possibilities frontier is to shows a possible combination with in two goods.The PPF graph below will excuse the 3 economic concepts.LaptopSugar010753211 2 3 5 6 7ABCDEFBasically, scarcity means there are unlimited wants and limited resources. And to explain this concept by using this Production Possibilities Frontier(PPF), the graph shows t hat 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. Taste and fashion, a change in income, changes in population, changes in price of related goods(either complementary goods or substitutes goods), increase of advertisements, in troduction of bran-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 outlay of good A has increased from P0 to P1 therefore caused the quantity demanded to decreased from Q0 to Q1 as well as the movement 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 calculate 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