proposal as demand is inelastic and elastic.With a sharp increase in prices for some items there will be growth on his proposal, as part of the share in the profit increases.But in this case, few buyers willing to purchase goods at a higher price.As a result, sales dropped significantly compared with the proposal.However, if the increase or decrease in the volume of consumer demand relatively quickly reacts to changes in prices, the supply situation, the situation is somewhat different.
manufacturer does not have time to react to the change, since it takes some time to increase its production.Thus, the volume of supply is not as sensitive to changes in prices in the short term.
To see the phenomena described above, using indicator - the elasticity of supply, which shows how the percentage has changed the volume of supply when the price changes of goods by 1 percent.It is believed that other factors affecting the bid, remain unchanged.
The greater the elasticity of supply, the manufacturer is easier to increase the volume of manufactured goods and then take advantage of the price increase received an advantage.With easy availability of resources, an increase in the release of goods can occur even with a small increase in price.This suggests that the elasticity of supply is relatively high.With limited production capacity, it will not have the elasticity.
should take into account the supply response in the long and short term.In the near future the ability of producers is limited, firms can not quickly bring the available resources in line with the changed market conditions.Compared to the volume of supply to demand is not as sensitive to changes in price.Therefore, in the short term, it is the volume of demand will experience the greatest impact.
on seller behavior influenced by the following factors:
- existing production capacity: the larger the amount of fixed assets owned by the manufacturer, the higher the level of prices in any volume of supply;
- the dominant technology in the world: the emergence of improved methods for the production of products makes it possible to reduce the cost of the goods, which ultimately leads to an increase in the volume of supply regardless of the price;
- production costs: at current prices for the goods changes in the cost of resources leads to a decrease or increase in the volume of supply.
theoretical assumption that the price increase will cause a growth in the supply takes place only if a perfect market (price elasticity of supply).However, in reality anticipation of demand over supply of people do not always cause it to increase.The manufacturer is not always willing to get rid of the deficit and undermine its dominant position in the market.Sometimes between price and demand, and there is an inverse relationship: for example, the reduction of world-class value for certain types of products makes exporters to increase the offer to save at the same level of their income.Even with an attractive price is not always an opportunity to increase the supply, especially in the short term.Also, a situation may arise in which the seller is unable to reduce the sentence, even if not sufficiently competitive price.
If a long period of market equilibrium is disturbed, it can lead to serious consequences.With continued growth in the supply of goods will be reduced rates, and its production will be carried out until the market price will be higher costs.There may come a time when some manufacturers would be unprofitable to produce certain types of products.In the reverse situation (growth in demand) in the maximum increase in the price at which the population will not be able to buy goods.
perfectly elastic demand describes a situation where consumers while reducing prices indefinitely increase the volume of demand, but at higher prices - are beginning to completely abandon the goods.