Elasticity of Supply
Essay Writing: IGCSE
Example 1:
Case Study: In the Republic of Korea, there are many firms that produce cars and electronic gadgets (manufacturing goods) and then export them across the world. Not only limited to that they also produce organic fruits (farm goods) which they export to other countries.
Considering the data above evaluate whether the PES is larger in the case of manufacturing goods compare to the farm goods.
A possible answer could as stated below;
Before we get into the evaluation of the elasticity comparison of manufacturing goods and farm goods, let me explain the price elasticity of supply first.
Price elasticity of supply measures the responsiveness of the quantity supplied by the sellers to a change in price. When the response of a seller to a price change is high, it is considered that the price elasticity of supply is elastic. If the response is less, then, it is considered inelastic.
Price Elasticity of Supply
The response is measured using a formula that states the percentage change in quantity supplied over the percentage change in price. If the percentage change in quantity supplied is greater than the percentage change in the price then the response is considered elastic. On the other hand, if the percentage change in quantity supplied is less than the percentage change in the price then the response is considered inelastic
Now to compare the elasticity of the supply of the manufacturing goods and farm goods, I must say that the supply of manufacturing goods does not depend on the natural factors such as weather as they are mostly produced inside the factories, whereas, the production of the farm goods depend on the natural factors. For example, if there is too much rain then the production of farm goods could be affected. This means it is easier to change the supply of manufacturing goods in response to a change in price than farm goods.
Price Elasticity of Supply
The second factor could be the perishability nature of the goods. Farm goods are perishable which means can`t be stored for a long time at the same time they can`t be grown whenever sellers want to respond to a higher price in the market. It takes time to grow farm goods. Whereas, manufactured goods can be produced easily if resources and capacity are available. This means the supply of farm goods is less likely to change in response to a change in price compared to the supply of manufacturing goods.
As a result, it seems manufacturing goods are more price elastic as it is possible for a firm to work extra shifts to increase production and store them to respond to a higher price in the market unless the firm is operating at a full capacity or there is no space to store the goods.
However, it takes time and a large amount of technical equipment to make manufacturing goods such as cars making it more difficult to increase production anytime they want to respond to a change in price. Besides, there is a high cost involved when producing manufacturing goods. So some firms may not be able to afford to produce a large quantity anytime they want. This may make the supply of cars less price elastic.
Price Elasticity of Supply
Moreover, if the manufacturing industry as a whole is operating at full capacity and then willing to respond to a higher price means supplying more by increasing their capacities. If the conditions such as labour, raw material, and industrial policies are not supportive then it would be hard for the firms to respond to a change in the price.
Alternatively, farm good producers collectively can respond to a change in price if they have enough stocks available.
To conclude, I think, manufacturing good producers can be more price elastic in the long run than farm good producers. This is due to the ability of the manufacturing good producers to adjust their production facilities and then respond to the market price.
Whereas, farm good producers can be responsive to price change collectively in the short-run but not manufacturing good producers as it is unlikely that they would change their production facilities based on the short-term increase in price. On the other hand, as land is limited in quantity, so, farm good producers can`t produce beyond a limit leaving them to be unresponsive to a change in price in the long term.
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