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The supply and demand for any given commodity may be elastic or inelastic based on changes in the price of the commodity. This is known as price elasticity.
If the price of a commodity increases and the demand for the commodity remains the same the demand for the commodity is said to be inelastic. That is
because the change in the price of the commodity did not result in a change in the amount of the commodity purchased. Alternatively, if an increase in the price of
the commodity resulted in lower demand for the commodity, the demand for that commodity would be said to be elastic. Conversely, if the price of a commodity
increased and it attracted new producers, the supply for that commodity would be said to be elastic as the change in price resulted in a change in the supply. If
an increase in price did not result in increased supply, the supply would be said to be inelastic.
The cost of establishing production or to entering a market will greatly impact the elasticity of the supply for a given commodity. The greater
the costs and barriers to entry the more inelastic the supply for the commodity will be. If the price of gold were to increase from $1,200 per ounce to $1,300 it most likely would not result in a huge increase in supply as the costs associated with establishing a gold mining operation are substantial. The supply for agricultural products on the other hand tends to be elastic as farmers adjust production relatively quickly to a change in the price for any given commodity. It would not be a difficult task to plant wheat rather than corn, if the price of wheat made growing that crop more attractive. Pass your series 3 exam or your money back with
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The Securities Institute of America, Inc.