Question

Suppose that on Valentine's Day, the demand for both roses and greeting cards increases by the same percentage amount. However, the price of roses increases by more than the price of greeting cards. Based on this information, you can conclude that the supply of Valentine's cards is sensitive to price than the supply of roses?

Answer 1

Answer:

Based on the information supply of cards is more elastic (price sensitive) than that of roses

Explanation:

Price elasticity of supply is defined as the sensitivity of quantity supplied to changes in price.

The formula is given below

Price elasticity of supply= Change in quantity supplied ÷ Change in price

In this scenario the demand for both roses and cards increases, however the price of roses increases more.

This implies that the denominator in the formula is higher in roses resulting in smaller price elasticity of supply.

The elasticity of supply for cards is higher than that of roses, so it is more sensitive to changes in price.

Cards can be stored from year to year so the labour for maintaining a stock of cards is low with resultant low price.

On the other hand roses require care to grow. It requires watering, application of chemicals to treat infestation and so on. So suppliers tend to push the extra cost of growing roses to the buyers

Answer 2

Answer:

Yes , Valentine cards are more price sensitive.

Explanation:

When Demand exceeds supply, prices rise. As a result of the increase in price, supply increases.

The increase in supply is in line with the law of supply which says, the higher the price, the higher the quantity supplied and the lower the price, the lower the quantity supplied.

If there's an increase in the demand for roses and cards, it is expected that prices would rise. However, if supply for these items increases, prices would fall and if supply doesn't increase, price would not decrease.

So if the price of roses increases by more than the price of greeting cards it indicates that the supply of rose didn't increase as much as the increase in supply of cards.

This means that the supply of roses is less price sensitive when compared to greeting cards.