would this be right?(Original post by The Financier)
I wouldn't really illustrate this with a diagram because you're heading down the path of talking about substitutes which can very easily lead to confusion with cross elasticity, a demand-related concept rather than supply. He is only talking about things that affect the price elasticity of supply, the firm's ability to make alternative goods easily, being one of them.
By talking about increasing demand, he is implying that the equilibrium price of vans has risen significantly, relative to the equilibrium price of cars. How a firm reacts to this depends on how easy it is to shift their production from cars to vans so you cannot illustrate this on a diagram because the fact that demand has increased does not have anything to do with how easy it is for the firm to shift production.
If the factors of production of cars and vans are very similar, a firm can change their production from cars to vans quite quickly without any significant change in the cost of production (as they are simply allocating resources that would have be used for cars to make vans instead), so they can quickly respond to the change in price to make more money.
Contrast this to if making vans required a new factory, a vastly different set of equipment etc. They would not be able to shift production easily without incurring significant costs, so there is far less response to changes in the good's price.
My point here is that the fact that there is increasing demand for vans is irrelevant to the point he was making. It is only used to facilitate his question (i.e. "noise".
Supply curve is so difficult!!!!!!!!!!!!!!! Watch
- Thread Starter
- 26-09-2016 17:18
- TSR Support Team
- Clearing and Applications Advisor
- 26-09-2016 17:35
Quite simply, if you're trying to learn about PES from that video, ignore the fact that demand has risen because that is noise that isn't meant to be of any use. The information provided in the example is not enough for you to illustrate with a diagram - indeed, he'd probably have done so if he could.Last edited by The Financier; 26-09-2016 at 17:40.
- Thread Starter
(Original post by The Financier)
- 26-09-2016 17:43
Again, the diagram has absolutely no relevance to the price elasticity of supply by itself so if you were answering a question about price elasticity of supply it would not earn you any marks whatsoever. You're illustrating an increase in demand, but it doesn't illustrate anything to do with the slope of the supply curve. It's gone off on a tangent that doesn't have anything to do with PES.
Quite simply, if you're trying to learn about PES from that video, ignore the fact that demand has risen because that is noise that isn't meant to be of any use. The information provided in the example is not enough for you to illustrate with a diagram - indeed, he'd probably have done so if he could.