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Elasticity of Supply: Understanding the Impact of Retail Price Changes

In this chapter, we explore the concept of elasticity of supply and how changes in retail price affect the quantity supplied. We examine the characteristics of elastic goods and inelastic goods, and discuss the factors that determine whether a product or service is elastic or inelastic. Examples of elastic and inelastic goods are provided to illustrate the concept.

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Elasticity of Supply: Understanding the Impact of Retail Price Changes

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  1. Chapter 4 Elasticity of Supply

  2. Elasticity – the degree to which changes in retail price affect the quantity supplied • Elastic Goods - Small change in price causes a major, matching change in supply. • Inelastic Goods - Change in price causes little impact in the quantity supplied.

  3. Elastic Goods • Goods tend to be elastic if: - They can be made quickly. -They can be made inexpensively - They use a few, readily available resources Ex. T-shirts for Super Bowl winning team

  4. Inelastic Supply • Goods or services tend to be inelastic if: - Production requires a long time – wine or even pomegranates - Production requires a lot of money – airplanes or large ships - Production requires resources that are not readily available – gold or diamond jewelry

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