Question

suppose that due to unfavorable growing conditions, this year’s global coffee crop was unusually small. what can we assume about the short-run price elasticity of supply and demand for coffee?

Answer 1

The short-run price elasticity of demand will be inelastic and the short-run price elasticity of supply will be inelastic.

Elasticity of demand measures the relationship that exists between price and quantity demanded.

Elasticity of supply measures how quantity supplied changes when there is a change in the price of a good.

Types of elasticity.

1. Elastic demand (supply): This means that demand (supply) is sensitive to price changes
2. Inelastic demand (supply): this means that demand (supply) does not respond to price changes. The coefficient of elasticity is less than one.
3. Unit elastic demand (supply): demand (supply) changes in equal proportion. The coefficient of elasticity is equal to one.

Factors that affect elasticity

1. The number of substitutes the good has: the more substitutes the good has, the more elastic demand is.  
2. The length of time: demand (supply) is inelastic in the short run. In the short run, producers (consumers) do not have enough time to find suitable substitutes.  In the long run, producers would have more time to search for suitable substitutes or shift to the production of other goods when compared with the short-run.
3. Ease of entry or exit into an industry: the more easy it is for firms to enter into an industry, the more elastic supply would be.  

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