Economics Questions and Answers

The elasticity of supply measures how changes in prices would affect supply. The supply of agricultural products is most likely to be elastic in the long run, (a period of time where all factors of production and costs are variable). This means that in the long run, the cost of farm inputs and factors of production used in farming would be subject to change, and farmers cannot as a matter of fact place a fixed cost on their estimated expenses.

Some of the factors that may cause a change in supply include; changes in the costs of production, improvements in technology, taxes, subsidies, weather conditions, health of livestock, and also by the price of other products. 

The price of the commodity itself does not affect the change in supply, but rather it affects the change in the quantity supplied.

If there is an increase in supply while the demand tends to remain the same, prices will most likely fall.

So an increase in the supply of fish in the market will only affect the demand and price of the fish as they may be more fish in the market than people who are willing and ready to buy the fish. This, however, will not affect the prices or the quantity demanded of meat. 

Competitive demand exists where a number of substitutes exist and one good can be purchased instead of another good. Tea and coffee are substitute goods, a consumer can either decide to consume tea or coffee. A fall or rise in the price of either of the two goods will lead to a fall or rise in the demand for its substitute.

An inferior good is one whose demand drops when people's incomes rise.