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4. Responsiveness of supply to changes in price

The importance of the elasticity of the supply of the inputs used in production is best illustrated by considering two extreme examples. First let us consider diamond necklaces. Diamonds are in inelastic supply – even if the price of diamonds doubles, not many more can be found. If the price of diamond necklaces rose, necklace makers would like to supply more necklaces. However, they would be unable to do it as there would be no more found. The supply of diamond necklaces is inelastic because the supply of diamonds is inelastic.
Next let us consider silicon chips. Silicon comes from sand which is available in almost unlimited quantities and so have a highly elastic supply. If the price of silicon chips rose, their makers would like to supply more and they would be able to get extra sand at about the same price as before. So they could supply more chips at their present price. In other words, the supply of silicon chips is elastic because the supply of sand is highly elastic.

Key words:

Store запас, склад zaxira, ombor
Rapid быстрый, скорый, крутой tez, tezkor
Expansion расширение, растягивание kengayish, hajmini oshirish.
Divorced развод, разделить nikoxdan ajralish.
Leadership руководство, предводительство boshqarmoq, qo`lga olmoq.
Sales продажа sotilish, sotish.
Incorporated объединяться, соединить birlashtirmoq.
Change перемена, изменены, обмен, пересадка o`zgarmoq.
Descriptive описательный, образный tasvirlovchi, bayon qiluvchi.
Executive исполнительный ijro etuvchi.
Route маршрут yo`nalish.
Insurance страхование sug`urta.
Real настоящий haqiqiy.
Estate поместье, имущество yer-mulk, mol-mulk.
Subsidiary вспомогательный, дополнительный yordamchi, ko`makchi.
Annual ежегодный, годовой yillik
Image образ qiyofa.
Local местный mahalliy.

After studying this module, you should be able to answer the following questions:

1. How responsive is consumer demand to changes in prices and changes in incomes?
2. How responsive is firms’ output to a change in price?
3. How does this responsiveness (or ‘elasticity’) of demand and supply affect the working of markets?

EXERCISES: