Final answer:
The supply of housing in Honolulu is elastic, meaning supply is highly responsive to changes in price. A more elastic supply will result in a higher increase in quantity supplied with a rise in demand, leading to a smaller price increase.
Step-by-step explanation:
The supply of housing in Honolulu is elastic. This means that the elasticity value is greater than one, indicating a high responsiveness to changes in price. For example, if the price rises from $10 to $11, and the quantity supplied (Qs) rises from 80 to 88, we can calculate the percentage change in quantity supplied to understand the degree of elasticity. The more elastic the supply of housing, the greater the quantity supplied will respond to an increase in price, leading to a smaller rise in the price of housing when demand increases compared to inelastic supply conditions.
We can categorize elasticities into three main categories: elastic, inelastic, and unitary. An elastic supply like the one in Honolulu suggests that a small change in price will lead to a larger percentage change in quantity supplied. Conversely, an inelastic supply indicates a less significant change in quantity supplied with price fluctuations. This is crucial for understanding housing markets and the impact of demand on prices.