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ECON1001: Price Elasticity (1 Viewer)
- Thread starter SGSII
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OzKo
Retired
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- Jul 17, 2007
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- 2009
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- 2013
Because the price elasticity of supply represents how sensitivity of supply to price changes, we can interpret the question in this manner:
As the price of oil increases, suppliers will be willing to supply MORE to the market (because of higher prices of course, and the feasibility to extract from higher cost sources thus a greater supply to play around with).
In terms of a graphical representation, the supply curve pivots downwards (the gradient is smaller) so the change in supply increases as the price goes up. Keep in mind that point of the exercise is to show students that there isn't necessarily a linear relationship between price and supply. You need to always consider the context of the problem beforehand.
As the price of oil increases, suppliers will be willing to supply MORE to the market (because of higher prices of course, and the feasibility to extract from higher cost sources thus a greater supply to play around with).
In terms of a graphical representation, the supply curve pivots downwards (the gradient is smaller) so the change in supply increases as the price goes up. Keep in mind that point of the exercise is to show students that there isn't necessarily a linear relationship between price and supply. You need to always consider the context of the problem beforehand.