The coffee industry provides a good example of the difference between the short-run and long-run price elasticity
Question:
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.
Question.
Why is supply more price-elastic in the long run?
Step by Step Answer:
Microeconomics Principles Applications And Tools
ISBN: 9780134078878
9th Edition
Authors: Arthur O'Sullivan, Steven Sheffrin, Stephen Perez