Author Question: Why does a demand curve with a constant slope not have a constant elasticity? What will be an ... (Read 475 times)

Zulu123 · **on:** Jun 29, 2018

Why does a demand curve with a constant slope not have a constant elasticity?

What will be an ideal response?

Question 2

What are the main influences on the elasticity of supply that make the supply of some goods elastic and the supply of other goods inelastic?

What will be an ideal response?

smrtceo · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The slope and the elasticity of a demand curve are different but related concepts. The slope of the demand curve shows how price changes in relation to quantity. The elasticity of demand shows the percentage change in quantity demanded due to a percentage change in price. If, for example, you are consuming two units of a good, increasing consumption by one unit means that your consumption of the good increases by 50. But if you have consumed 100 units of the good, an increase of one unit means that your consumption increases only by 1. The slope here however, will be equal to the decrease in price divided by the increase in the number of units consumed. If the demand curve is linear the slope will be constant but the elasticity (which measures the percentage change in demand) will not be constant.

Answer to Question 2

The main influences on the elasticity of supply are:
Resource substitution possibilities: the greater the suppliers' ability to substitute resources, the greater will be their ability to react to price changes and the greater the elasticity of supply.
Time frame for the supply decision: the greater the amount of time available after the price change, the greater is the suppliers' ability to adjust quantity supplied, and the greater the elasticity of supply.