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Explain what influences the price elasticity of supply of a product. [8]

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Introduction

Transfer-Encoding: chunked ´╗┐Explain what influences the price elasticity of supply of a product. [8] The price elasticity of supply measures the responsiveness in the quantity supplied of a good in relation to changes in the price of the good. It is calculated by dividing the percentage change in the quantity supplied by the percentage change in the price of the good. If a product were to have a very low price elasticity supply, that would mean that suppliers would find it very difficult to increase or decrease output in relation to price changes in the product, while a product with high price elasticity of supply would be a product where the quantity supplied would have a very strong response to a change in price. ...read more.

Middle

Thus, products that take a very long time to produce, such as agricultural goods usually have a lower price elasticity of supply than goods which take relatively less time to produce such as manufactured goods. Another factor that can affect the price elasticity of supply is the perishability of the product. A product with high perishability cannot be stored for extended periods of time, as such, suppliers are unable to create large stocks of the product in order to be able to rapidly increase the supply of said product to the market if the price of the product happens to rise. ...read more.

Conclusion

Products that are manufactured out of readily available, abundant resources such as wood or steel can easily have their outputs increased as the raw materials needed are easy to get a hold of and, as such, there are fewer barriers to suppliers increasing output. Similarly, products which require factors of production which are in very limited supply, such as highly skilled labourers or rare natural minerals cannot have their outputs adjusted as easily because it is far more difficult for supplier to increase the inputs due to them being in either fixed, or very limited supply. Thus, such goods will have a tendency to have a substantially lower price elasticity of supple when compared to goods produced out of abundant resources. ...read more.

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