Inelastic supply, Managerial Economics

Inelastic Supply

Supply is said to be price inelastic if changes in price bring about changes in quantity supplied in less proportion.  Thus, when price increases quantity supplied increases in less proportion, and when price falls quantity supplied falls in less proportion.  The supply curve is steeply sloped and the elasticity of supply is less than one.

When price increases from P1 to P2, quantity supplied increases in less proportion from q1 to q2.  This is the case when there are limited stocks of the product or the product takes a long time to produce such that when price rises, quantity supplied cannot be increased substantially.

Conversely, if price falls from P2 to P1, quantity supplied falls in less proportion from q2 to q1.  This is the case of a commodity which is perishable and cannot be easily stored, e.g. fresh foods like bananas and tomatoes.  These are perishable but not so highly perishable as fresh fish.  When price falls, quantity supplied cannot be drastically reduced.

Posted Date: 11/27/2012 6:49:35 AM | Location : United States







Related Discussions:- Inelastic supply, Assignment Help, Ask Question on Inelastic supply, Get Answer, Expert's Help, Inelastic supply Discussions

Write discussion on Inelastic supply
Your posts are moderated
Related Questions
SHORT RUN OUTPUT AND PRICE In monopolistic competition, it's the product differentiation that permits its price without losing sales.  Due to brand loyalty consumers will c

Average Propensity to save The Average Propensity to Save [APS] is defined as the fraction of aggregate national income which is devoted to savings.  Thus if S denotes savin

THEORY OF COMPARATIVE ADVANTAGE In his theory put forward in a book published in 1817, David Ricardo argued that what was needed for two countries to engage in international t

The International Monetary Fund The International Monetary Fund is a kind of an embryo World Central Bank.  Its objectives are: i.    To work towards the full convertibilit

1. Define 'Arc Elasticity'. 2. Explain the law of 'Diminishing marginal returns'. 3. What is 'Prisoner's Dilemma', of non cooperative game? 4. What is 'Third degree Discrimation'?


Use a computer regression package, to work these two computer exercises. 2. Ozark Bottled Water Products, Inc. hired a marketing consulting firm to perform a test marketing of its

Using the discounting principle calculate the present value of an annuity of five years at Rs. 500 payments made at the end of each of the next five years at 10% interest. stion..

Question: (a) As an advisor to government as well as that to a firm how will you make use of your knowledge on price elasticity of demand, income elasticity and cross price ela

Q. Describe Managerial and behavioural theories? It was only in 1960s that neo-classical theory of firm was disputed by alternatives like behavioural and managerial theories. M