Final answer:
Supply is described as elastic when a company can adjust quickly to changing prices. The law of supply and the price elasticity of demand significantly influence how businesses manage costs and set prices. An example of this is a messenger company that can increase supply when gasoline prices fall, improving their services and market reach.
Step-by-step explanation:
Supply is considered elastic if a company can react to new prices quickly. The concept of supply is crucial in understanding how businesses respond to changes in market conditions, such as the price of key inputs or advancements in production methods. When businesses are confronted with a change in the cost of primary resources, such as coffee shops with coffee beans or chemical companies with petroleum, their ability to adjust prices often depends on the price elasticity of demand for their products. If demand is price elastic, consumers are sensitive to price changes, and businesses might struggle to pass on higher costs without losing customers. Conversely, if demand is inelastic, there is less sensitivity, allowing companies to transfer cost increases to consumers more easily.
The law of supply states that there is a positive relationship between price and the quantity supplied: as prices rise, the quantity supplied typically increases and vice versa. This principle is influenced by how businesses manage their production costs and the flexibility they have to adjust to market changes efficiently. An example is a messenger company whose main cost is purchasing gasoline; if gasoline prices fall, the company can deliver services more cheaply, increase supply, and possibly expand their market coverage.