Answer to Question #279603 in Economics of Enterprise for Syaf

Question

the importance price elasticity of supply in manufacturing sector and agriculture sector.

Answer 1

The concept of price elasticity of demand also applies to supply. Its essence is the following: if producers are sensitive to price changes, then supply is elastic. And vice versa.

The formula for the elasticity of demand is also suitable for determining the degree of elasticity of supply. The only change is to replace percentage change in quantity asked for with percentage change in quantity offered.

The most important factor affecting the elasticity of supply is the amount of time available to producers to respond to a given change in product price. The longer the time available to producers to adjust to a given change in price, the greater the change in output, and hence the greater the elasticity of supply. Consequently, the greater the change in output, the higher the elasticity of supply.

The price elasticity of aggregate supply of agricultural products as a whole depends on, but is not reduced to, the price elasticity of its components and is therefore determined by other factors. In particular, important factors for this type of elasticity are natural conditions, the structure of supply by source of formation and the ratio between own and purchased resources. Under current conditions, agriculture in developed countries is experiencing a sharp increase in the use of purchased resources. As a result, the influence of resources such as land and labor, which played a primary role in the past, is declining. As a result, the price elasticity of the total supply of agricultural products is increasing.