2 (a)The price elasticity of supply for a new smartphone is estimated at 0.8 in the short run and 1.5
in the long run.
Explain price elasticity of supply and suggest why the above estimates differ.
[8]
Please write the answer in full form, not in note form.Write at least 8 sentences for this answer
Answers
Answer:
PART OF
Practical Look At Microeconomics
CORPORATE FINANCE & ACCOUNTING FINANCIAL RATIOS
Price Elasticity of Demand
By STAFF AUTHOR Reviewed by MARGARET JAMES Updated Feb 28, 2021
What Is Price Elasticity of Demand?
Price elasticity of demand is a measurement of the change in consumption of a product in relation to a change in its price. Expressed mathematically, it is:
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
Economists use price elasticity to understand how supply and demand for a product changes when its price changes.
Economists have found that the prices of some goods are very inelastic. That is, a reduction in price does not increase demand much, and an increase in price does not hurt demand either.
For example, gasoline has little price elasticity of demand. Drivers will continue to buy as much as they have to, as will airlines, the trucking industry, and nearly every other buyer.
Other goods are much more elastic, so price changes for these goods cause substantial changes in their demand or their supply.
Not surprisingly, this concept is of great interest to marketing professionals. It could even be said that their purpose is to create inelastic demand for the products they market. They achieve that by identifying a meaningful difference in their products from any others that are available