TAYLOR’S BUSINESS SCHOOL

Taylor’s Business Foundation

MARCH 2010 INTAKE

SEMESTER 1

ECONOMICS I (ECNF01)

Individual Assignment

(Tutorial Group -1.7)

Question 2

PART A

The price elasticity of supply is to determine how much the quantity supplied of a good responds to changes in price. Price elasticity of supply depends on the flexibility of sellers to change the amount of the product they produce. In markets, time period is being considered of the key determinant of the price elasticity of supply. As usual, supply is more elastic in long run than the short run period. Over short run periods of time, a firm cannot change their systems to produce more o less of a product. Therefore, the quantity supplied is not very responsive to the price. In the other way, over longer times, firms can build a new factory or close the old ones. So, the quantity supplied can respond to a large extent to the price in the long run period. One of the determinants of price elasticity of supply is the time period. The longer the time period under a consideration, the more elastic the supply is. The product that the consumers got used to it in a long term of period, would be hard for them to change to use other product in a short period. The more consumers choose to use for a longer term product, the more elastic of the supply. For an example, although the price of cigarettes have increase in the market, but the consumers will still willing to buy them with the market price. The other determinant is long run. Fir the new firms to enter the industry and inputs to be increased will be sufficient in the long run.

PART B

The concept of price elasticity to decide on their pricing strategy is by advertising. It makes the product more attractive and give them a new taste of sensation or make them envy of their friends. This will occur when the advertising creates