Maravilla, Kayreen M.

BSA 3

1. Define the concept supply and law of supply.

Supply refers to the quantity of a product or service that producers are willing and
able to sell at different prices in a given period of time. In response to many human
needs, producers are given the opportunity to create products and provide services to
make a profit. The Law of Supply states that there is a direct or positive relationship
between price and the quantity supplied of a product. As the price increases, so does the
quantity of the product or service that is ready and affordable to sell. When the price goes
down, the quantity of a product or service that is ready and able to be sold decreases.
According to the Law of Supply, whenever producers decide to produce a product or
provide a service, price is their primary basis. This law shows that the market price of the
product or service is the producer’s primary basis in creation. As a result, they are more
likely to sell more when the price is high.

2. What do you understand by Price elasticity of supply?

The price elasticity of supply is the degree to which the quantity of supply
responds to price changes. Through elasticity of supply, the producer’s response to the
percentage change in price is measured. This changes as a result of the difficulty or ease
of obtaining production ingredients to be used in the development of products. Traders
and producers are encouraged to supply more products when prices are high. However,
this is not always possible because there is also a limit to the number of products
produced due to the production factor. The producer’s reaction to change is limited to
only a short time and this reaction is called the elasticity of supply.

3. Explain the factors influencing the elasticity of supply in the market with example.
Not only does price change supply, there are various factors that affect supply that
can result in an increase and decrease in supply, even if the price does not change.
Technology - It refers to the use of innovative knowledge and equipment in the creation
of products. This helps in speeding up the creation of products.
Vendor Volume - Increasing the price of a particular product can encourage more traders
to sell. This is a sign that a product has a lot of supply.
Subsidy - The subsidy is assistance provided by the government to small entrepreneurs
and farmers to increase their production and increase the supply of products.
Expenses - One of the expenses of an entrepreneur is the tax or the contribution imposed
by the government on the people for the entrepreneurs. Raising workers' wages is also
one of the expenses of entrepreneurs.
Weather/Climate - The supply of the product is in accordance with the weather
conditions in an area, especially in agricultural products.
Price of other Products - When the price of the product goes up, suppliers are excited to
sell said product. So it can be said that increasing the price of another product increases
the supply of the complementary product.
 Expectations - Due to the expected price increase in the coming days as a result of
environmental events the producers reduce the supply of the product which causes the
supply to decrease.

4. Mention types of supply elasticity with example.

 Elastic - This indicates that the percentage change in supply volume is superior to
the percentage change in price. For example, every Christmas, the supply of toys
and clothes increases greatly because everyone enjoys them. The higher the
supply, the higher the price.
 Inelastic - This implies that the percentage change in supply volume is less than
the percentage change in price. For example, in the manufacture of jewelry, even
if the price goes up, the supply will not just go up. This is because the process of
mining nickel, gold, and other minerals are difficult and time-consuming. They
have to wait because its production is not quick.
 Unitary Elastic - This is the level at which the quantity of supply responds to the
price and there is no change or both. For example, rice. Lowering the price of rice
will not increase its supply because human needs for it are constant. If a family
can consume only two measures, they only need two measures so that human
consumption will not increase even if the price goes down. As a result, supply and
price change equally.
 Perfectly Elastic - With this supply, the firm is willing to supply any number of
products or services even without a change in price. For example, pirates or
imitations will fluctuate supply even if the price does not change. It only depends
on the interest of the person whether he wants to buy or not. Supply can also
increase even if the price does not change because they are on-trend. When it goes
away, even if the price does not change, there will be fewer buyers so production
will also decrease.
 Perfectly Inelastic - This states that whether the price of a product rises or falls,
the supply of this product remains the same. For example, Da Vinci’s original
Mona Lisa painting is only in stock. That is, there is only one supply. Whether the
price of the painting goes up or down, it is still one.

5. What was demand curve show?

The demand curve is the graph based on the demand schedule. If different
combinations of price and quantity demanded are applied to the graph, a demand curve
will be formed. If these points are ruled out, a downward sloping curve will be formed.
This curve shows the inverse relationship between prices and the quantity a consumer
wants and can afford. When there is a change in the demand of a commodity, the demand
curve shifts. The demand curve shifts to the left when the demand for the commodity
decreases. The demand curve shifts to the right as the demand for a commodity increases.

6. What is the effect of a tax increases in the original supply curve?

 The supply curve swings to the left when the government raises a product's tax,
consumer prices rise, and seller prices fall. The tax increase does not influence the
demand curve, and it does not affect supply or demand elasticity. This proposed tax
increase can be classified as marginal because it is a tax on top of existing taxes.

7. What is the equilibrium price?

In a market, equilibrium is a situation where no one in the buyer and seller wants
to change the current market situation. Equilibrium shows the agreement of buyer and
seller on a fixed price and quantity of product. Equilibrium price refers to the market
condition in which the number of supply is equal to or the same as the number of
demand. This is also called the market-clearing price.