Final answer:
A baker of chocolate chip cookies will have a higher price elasticity of supply than a seller of rare baseball cards because the production of cookies is more adaptable to price changes. Supply tends to be more elastic in the long run compared to the short run, and the supply of luxuries has a more significant impact on their prices than the supply of necessities.
Step-by-step explanation:
A baker of chocolate chip cookies is likely to have a higher price elasticity of supply than does the seller of rare baseball cards due to the production and availability differences between the two goods. The concept of price elasticity of supply refers to how sensitive the quantity supplied of a good is to a change in its price. A supply is considered elastic if a small change in price leads to a significant change in the quantity supplied, and inelastic if that quantity supplied is unresponsive to price changes.In the case of chocolate chip cookies, the baker can relatively quickly and easily increase production in response to a price increase, assuming the raw materials are available. This is because cookie production is relatively straightforward and scalable. By contrast, the supply of rare baseball cards is inherently inelastic, as these items are limited in number and cannot be reproduced or increased to meet rising demand.Furthermore, in the long run, we would expect both the elasticity of demand and supply to be higher. This is because, over time, consumers and producers can adjust their behavior to price changes more fully than in the short run where they are constrained by immediate factors such as existing contracts or slow-to-change consumption habits.
When it comes to determining the price of goods, the supply of luxuries, such as perfume, might be expected to have a more significant impact on price than the supply of necessities like food. This is due to the fact that necessities tend to have inelastic demand, meaning consumers will buy them regardless of price, whereas luxuries have elastic demand, meaning consumers are more sensitive to price changes. Therefore, a change in supply can lead to a more pronounced change in the price of luxuries compared to necessities.The law of diminishing marginal utility further explains consumer behavior, illustrating that the utility or satisfaction obtained from consuming each additional unit of a good decreases as one consumes more of it. This concept helps in understanding why the demand for certain goods may become more elastic over time as the quantity consumed increases.