Thread: Supply and Demand diagram

Hello,

I need to show in a supply and demand diagram how prices and quantities of sea transport are affected by different factors.

The question is: If ships could be built really rapidly at a low cost, would we expect smaller movements in the price of shipping goods? Explain using a S&D diagram.

Thanks in advance!

Originally Posted by sebasto

Hello,

I need to show in a supply and demand diagram how prices and quantities of sea transport are affected by different factors.

The question is: If ships could be built really rapidly at a low cost, would we expect smaller movements in the price of shipping goods? Explain using a S&D diagram.

Thanks in advance!

The answer is a function of the elasticity of the supply curve. An elastic supply curve means that small changes in price can have a big impact on quantity supplied. An inelastic supply curve means that small changes in price have very little impact on quantity supplied. If ships could be built rapidly and at low cost, it suggests an elastic supply curve (firms can respond quickly to price changes).

I suggest drawing three different S&D graphs with equivalent demand elasticities but different supply elasticities. Note that demand and supply shocks (shifts in demand or supply) result in larger changes in price in the graphs with inelastic supply.

What you wrote makes sense, but I'm new in this subject and don't really know how to represent that information in three different S&D diagrams.
Could you explain it step by step?

Thank you

Originally Posted by sebasto

What you wrote makes sense, but I'm new in this subject and don't really know how to represent that information in three different S&D diagrams.
Could you be more specific?

Thanks you

Check your micro textbook for examples of elastic vs inelastic curves. A perfectly inelastic curve will be vertical, and a perfectly elastic curve will be horizontal. Anything in between is more or less elastic depending on how close it is to being horizontal or vertical.

Ok I'll check my micro book. About the three diagrams you suggested, what should each one of them represent?

Originally Posted by sebasto

Ok I'll check my micro book. About the three diagrams you suggested, what should each one of them represent?

I'm not entirely sure what you're asking here. Can you clarify?

Also, feel free to make an attempt at those graphs, scan them or snap a photo of them, and attache them in a follow up post.