Suppose in the production of pears, the short-run supply elasticity is 0.20, while the long-run supply elasticity
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Suppose in the production of pears, the short-run supply elasticity is 0.20, while the long-run supply elasticity is 3.5. Predict the effects of a 15% increase in price on the quantity of pears supplied in the short run and the long run. (Related to Application 5)
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5 Application THE SHORT-RUN AND LONG-RUN ELASTICITY OF SUPPLY OF COFFEE APPLYING THE CONCEPTS #5: Why is supply more price-elastic in the long run? The coffee industry provides a good example of the difference between the short-run and long-run price elasticity of supply. The price elasticity of supply over a 1-year period is relatively low. If the price of coffee beans increases by 20 percent and stays there for a year, the quantity of coffee supplied will increase by a relatively small amount. A newly planted coffee bush takes 3-5 years to yield marketable beans, so in the short run (up to 3 years), an increase in coffee production requires an increase in the quantity harvested per bush, which is possible if coffee producers apply more fertilizer and water to coffee bushes. In the long run, coffee farmers can also plant more coffee bushes, so a sustained increase in price generates a larger increase in quantity supplied. In the long run, the coffee supply curve is flatter and the supply elasticity is larger. Related to Exercises 5.5 and 5.6.
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Related Book For
Microeconomics Principles Applications And Tools
ISBN: 9780134078878
9th Edition
Authors: Arthur O'Sullivan, Steven Sheffrin, Stephen Perez
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