Elasticity Of Supply Short Run And Long Run Essay

( Geoff Riley et Al. 2006 ) There are determiners in monetary value snap of supply. One of the determiners is clip period. In clip period, it is divided into short tally and long tally. Short tally is meant by a period of clip short plenty so that the measure of one or more factors of production used to bring forth a specific good can non be changed. The topographic point capacity of single manufacturers and of the industry is assumed unchanged. Therefore, the short tally is a phase of clip that is excessively short to allow the measures of all the phenomena of the production to be changed. For illustration, the supply in apples is shown by Ss in Figure 2.1.

The rise in demand is met through a bigger measure alterations ( Q1 to Q2 ) and a smaller monetary value alterations ( P1 to P2 ) than in the market period ; monetary value is as a consequence smaller than in the market period. The long tally means that a period of clip that all the necessary alterations to phenomena of production is available. Therefore, all phenomena are variable in long tally. For illustration, in apples industry, the single husbandman can utilize new equipment. Then, more husbandmans may be interested to apples production by lifting up the demand and raise the monetary value of apples. These alterations mean an even bigger supply response ; that means the supply curve SL is more elastic. The lower monetary value that causes the monetary value ( P0 to P1 ) but the bigger consequence ( Q0 to Q1 ) in response to the determined addition in demand. This is shown in Figure 2.2.

Figure 2.1 Figure 2.2

Following, another determiner is degree of replaceability. The manufacturer will be interested to bring forth more of the goods when the monetary value of the goods increases. The superior the grade of the replaceability factors of production procedure of one good and the production procedures of other goods, the greater the snap of supply of that good. For illustration, field that is able to bring forth Paddies can be use easy when the monetary value of rice additions. The greater the replaceability of field and Paddy will increase the measure of Paddy supplied in response to any given additions in monetary value.

Part B

There are ways of scheme for a concern to make up one’s mind on their pricing scheme by utilizing the construct monetary value snap. The first manner is the pricing of the replacement goods. If the other manufacturer decrease the monetary value of their merchandise, the house will used the cross-price snap of demand to find the measure demanded of the merchandise and the entire gross the house will obtain. For illustration, two company selling hot dog as their manufactured goods. In order to pull more clients, the two companies are viing to cut down their monetary value in order to pull more clients.

Meanwhile, concerns usually use pricing program for complementary goods to come to a determination on their merchandise monetary value. For illustration, tyre and autos are strongly complements good. So, snap will decidedly hold a negative value. In add-on, selling and advertisement is one of the schemes for concerns to do a determination on their merchandise monetary value. In extremely feasible markets where luxury goods carry widespread value, many concerns spend big sums of money every twelvemonth on persuasive selling and advertisement. This cut down the sum of the permutation consequence following a monetary value alteration and makes demand less reactive to monetary value. The consequence is that houses could be able to increase the monetary value of the merchandise. Meanwhile, raise their entire gross and turn consumer excess into higher net incomes.

Relation between two complement goods

Monetary value of Good N

An addition in the monetary value of good N will take to diminish in

P2 demand for good M


Demand for Good M


0 Q2 Q1

Relation between two replacement goods

Monetary value of Good B

Demand for Good Angstrom


P1 An addition in the monetary value of good B will

leads to the addition of good Angstrom


0 Q1 Q2

Question 3

One of the grounds about why supply of a merchandise increases is betterment in engineering. When the engineering is advance, the houses might be able to bring forth more units of production with lesser capital. The houses are able to bring forth more end product or fix the period of production in order to maximise their net income. For illustration, the vehicle company, when the company introduce in the latest engineering of machine, the company can increase the end product of units or shorten the clip period of bring forthing the end products. Therefore, with the aid of engineering, the manufacturers are able to maximise their supply in order to maximise their net income excessively.

Second, supply of merchandise might increase when the manufacturers make outlook about monetary values of their merchandises might increase in the hereafter. When they expect their monetary value of goods will increase in the hereafter, the manufacturers might increase their goods in either end product or monetary value in order to maximise their net income. For illustration, when the outlook in increasing of monetary value of goods is made by the house ‘s economic expert, the manufacturers will increase their supply so that they can accomplish more net income during the harvest period.

Third, the alteration in monetary values of other goods might increase the supply of either one goods. Let ‘s presume that goods A and goods B are substitution goods. When monetary value of goods A addition, the demand of goods B will increase, however, this will besides take to a addition in supply of goods B because the measure demanded for goods B had increased. Therefore, the manufacturer can maximise their net income in providing more goods B to the industry that might diminish the monetary value of goods B once more.

Figure 3.1

Monetary value




S0 S1

Quantity supplied

The figure 3.1 above shows that the addition in monetary value of goods will take to a rise in merchandise supplied to the house.

Monetary value

S0 S1 Figure 3.2

Quantity supplied

The figure 3.2 above shows that the addition in supply whereby one of the determiners of supply alterations.

Last, to sum up everything, the higher the monetary value of the goods, the more the manufacturers would provide it. This is because the more the measure they supplied, the more the net income they gain. The graph of supply curve is ever upward inclining curve.

Part B

( Campbell R. McConnell et Al. 2009 ) stated that the monetary value floors is meant by it is a minimal monetary value given by the authorities and it is usage to assist the manufacturers. Effective monetary value floors lead to grim merchandise excesss ; the authorities must either purchase the merchandise or get rid of the excess by holding presence of limitations on production or lifting up the private demand. Then the monetary value ceiling is defined as the maximal monetary value given by the authorities and is usage to assist the consumers. Effective monetary value ceilings make the merchandise deficit under control and if an evenhanded allotment of the good is required, the authorities must quota the goods to buyers. Following, both of this monetary value floors and ceilings are meant by the economic experts to forestall the equalisation of the competitory market and to eliminate excesss and deficits through differences in monetary values and besides prevent it from giving an false on distribution of resources.

Question 5

( Jonathan Kwok CY 1991 ) Differences between demand and measure demanded. Demand is define as the willingness and ability of a buyer to buy a good at a specific monetary value. Furthermore, the demand curve might be altering when one of the determiners of demand distorted. Examples of determiners of demand are income of the consumers, gustatory sensation and penchant of the consumers, outlook of the future monetary value and monetary values of other goods. As a consequence, when the demand curve displacements leftward, this is meant that the demand had decreased.

The jurisprudence of demand stated that, when the demand decreases, the demand curve will switch leftward. And when the monetary value of a good addition, the demand curve will travel upwards. Next, the factors of motion and switching in demand curve. One of the determiners, outlook of the future monetary value. When there is some outlook about the monetary value of Toshiba Computer will fall in the coming month, the consumers will detain to purchase until the monetary value autumn. This shows that, the demand for the present month will fall when there is an outlook about falling in monetary value of a good following month. The figure 5.1 below shows the alteration in demand curve about determiners of outlook of the future monetary value value. Switching from D0 to D1.

Figure 5.1

Monetary value of Toshiba Computer



Measure of Toshiba Computer

Besides, another determiner is the gustatory sensation and manner, besides known as the penchant. Let ‘s presume that the manner of places this month is Nike, automatically the demand of utility good, Adidas, will diminish. When the demand of Adidas places decreased, the demand curve of Adidas places will switch leftward from D0 to D1. The figure 5.2 below shows the demand curve of Adidas places.

Figure 5.2

Monetary value of Adidas Shoes



Measure of Adidas Shoes

Next, the measure demanded. The difference between the demand and measure demanded is measure demanded is able to be altered through monetary value of the good itself. Besides, the alterations for measure demanded is motion along the demand curve in either traveling upward or downward. For illustration, when the monetary value of Iphone 3Gs increased from RM1800 to RM 2000, the measure demanded of Iphone 3Gs will decreased from 200 to 150 and will ensue in traveling upward along the demand curve. The figure 5.3 below shows that the increasing in monetary value of Iphone 3Gs will ensue in diminishing in measure demanded of Iphone 3Gs.

Figure 5.3

Monetary value of Iphone 3Gs ( RM )

2000 B

1800 A


150 200

Quantity Demanded of Iphone 3Gs

Part B

Income snap of demand is defined as the proportion alteration in measure demanded response to a per centum alteration in income. Then, the grade of income snap of demand in separated into three types of grades. First, the income snap of demand is accurately 0 ( YED = 0 ) , in this instance, the goods are known as the necessity goods. This is meant, no affair how the income revolutionizes, the measure demanded for necessity goods will non be affected. Examples of necessity goods are shampoo, tabular arraies, cooking utensils, rice, sugar and etc.

Next, the inferior goods are the goods when income snap of demand is lower than 0, the negatives, ( YED & lt ; 0 ) . It is meant that when the household income rises, the demand are still falling. Examples of inferior goods are secondhand autos, photocopied text book or things that are lower in quality.

Furthermore, when the income snap of demand is positive, the snap is greater than 0 ( YED & gt ; 0 ) . And it is divided into two more types, income inelastic and income elastic. In income inelastic ( 0 & lt ; YED & lt ; 1 ) , the per centum alterations in measure demanded and per centum alterations in the addition in income is somewhat different. Which average per centum in measure demanded increased less than per centum increased in family ‘s income. In this instance, the goods are called normal goods. Examples of normal goods would be begs, nomadic phones, books or places. In income inelastic, the normal goods are non that responsive to the alterations in measure demanded of the goods.

Then, the income rubber band, which income snap of demand is positive and bigger than 1 ( YED & gt ; 1 ) whereby the measure demanded additions more than the rise in income. The goods in this class is known as luxury goods. For illustration, the luxury goods are branded points and expensive goods.

Question 6 Part Angstrom

A consumer excess means that the differences between the willingness of the clients to pay at the extreme monetary value of the merchandise and the monetary value that the client really pay for the merchandise. Figure 6.1 shows Anthony ‘s demand curve for Pepsi. Anthony will purchase 3 cups of Pepsi if the monetary value of the Pepsi is $ 4.00 per cup. So, if the monetary value of a Pepsi is fall to $ 3.00 per cup, Anthony will purchase 4 cups per hebdomads. So, the excess consuming by Anthony is known as fringy benefit. The difference between the maximal monetary value a client fulfilling to pay and the monetary value the client really pay are known as consumer excess. The demand curve shows that the willingness of the client to pay for the goods at different monetary values. This is shown in Figure 6.1.

Monetary value of a Pepsi ( per cup ) $



Figure 6.1



Quantity ( cups per hebdomad )

0 3 4

Producer surplus means that the monetary value the providers willing to obtain comparison to the sum that the providers really receive. Fringy cost is known as the excess net incomes to a company to provide more point of a good or service. For case, F & A ; N is willing to provide 50 tins of 100Plus at the monetary value of $ 3.00 per can, so the fiftieth tins must hold a fringy cost of $ 3.00. Besides, the F & A ; N is willing to provide 40 tins of 100Plus at the monetary value of $ 2.50 per can. So, the fringy cost for 40th tins is $ 2.50. This $ 0.50 is the manufacturer excess on each can of 100Plus. So, the part above the market supply curve is same to the amount sum of manufacturer excess in a market. This is shown in Figure 6.2.

Monetary value of 100Plus ( per can )

3.00 Supply


Figure 6.2

Quantity ( cups per hebdomad )

0 40 50

Part B

( Statemaster, 2010 ) Scarcity, pick and chance cost are the three economic constructs. Scarcity occurs because consumers have boundless demands but merely limited resources that gettable to convert those demands. Goods and services are known as panic excessively. Furthermore, factors of production such as natural resources, workers, capital, and industrial activity or economic sciences resources are used to do them. Time is besides known as panic. The job will decide if the pick are made by the consumers. The resolution of an economic job gives addition to a benefit and a cost. Opportunity cost is the picks that are given up when one act is taken. For case, a bakeshop produces tart and cookies to sell to the costumiers every twenty-four hours. But he merely willing produces 800 prostitutes if he produces none of a cooky. But if he produces 700 of prostitutes, so he willing to bring forth 100 of cookies. So, the chance cost is 100 pieces of prostitutes. If he bakes 300 pieces of prostitutes so the chance cost for cookies is 300. This is every bit shown in Figure 6.2.

Measure of prostitutes



300 Figure 6.2

Measure of cookies

0 100 400 800


Campbell R. McConnell, Stanley L. Brue, Sean M.Flynn, 2009, Economics 18th edition, McGraw-Hill, New York.

Geoff Riley, Eton College, September 2006, AS Markets & A ; Market Systems, online, retrieved 17 May 2010, hypertext transfer protocol: //tutor2u.net/economics/revision-notes/as-markets-price-elasticity-of-supply.html.

Jonathan Kwok CY, 1991, Difference between alteration in demand and measure demand? , online, retrieved 16 May 2010, hypertext transfer protocol: //wiki.answers.com/Q/Difference_between_change_in_demand_and_quantity_demand.

Geoff Riley, Eton College, September 2006, Consumer & A ; Producer Surplus, online, retrieved 18 May 2010, hypertext transfer protocol: //tutor2u.net/economics/revision-notes/a2-micro-consumer-producer-surplus.html.

Statemaster, 2010, Production possibility frontier, online, retrieved on 17 May 2010, from hypertext transfer protocol: //www.statemaster.com/encyclopedia/Production-possibility-frontier.

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