Module 2

Demand & Supply

Meaning of Demand
Demand in economics means a desire to possess a good supported by willingness and
ability to pay for it. If you have a desire to buy a certain commodity, say, a tractor, but
do not have the adequate means to pay for it, it will simply be a wish, a desire or a
want and not demand. Demand is an effective desire, i.e., a desire which is backed by
willingness and ability to pay for a commodity in order to obtain it. In the words,
"Demand means the various quantities of a good that would be purchased per unit of
time at different prices in a given market. There are thus three main characteristics of
demand in economics.
i. Willingness and ability to pay. Demand is the amount of a commodity for which a
consumer has the willingness and also the ability to buy.
ii.Demand is always at a price. If we talk of demand without reference to price, it will be
meaningless. The consumer must know both the price and the commodity. He will
then be able to tell the quantity demanded by him.
iii. Demand is always per unit of time. The time may be a day, a week, a month, or a
year.

Individual's Demand for a commodity:

The individual‟s demand for a commodity is the amount of a commodity which the
consumer is willing to purchase at any given price over a specified period of time. The
individual's demand for a commodity varies inversely with price ceteris paribus. As
the price of a good rises, other things remaining the same, the quantity demanded
decreases and as the price falls, the quantity demanded increases. Price (p) is here an
independent variable ad quantity (q) dependent variable.
The Market Demand for a Commodity:
The market demand for a commodity is obtained by adding up the total quantity
demanded at various prices by all the individuals over a specified period of time in the
market. It is described as the horizontal summation of the individuals‟ demand for a
commodity at various possible prices in market.
Demand Curve
Demand curve is a diagrammatic representation of demand schedule. It is a graphical
representation of price- quantity relationship. Individual demand curve shows the
highest price which an individual is willing to pay for different quantities of the
commodity. While, each point on the market demand curve depicts the maximum
quantity of the commodity which all consumers taken together would be willing to buy
at each level of price, under given demand conditions.
Price Demand:It refers to various quantities of a good or service that a consumer would
be willing to purchase at all possible prices in a given market at a given point in time,
ceteris paribus.
Income Demand:It refers to various quantities of a good or service that a consumer
would be willing to purchase at different levels of income, ceteris paribus.
Cross Demand : It refers to various quantities of a good or service that a consumer
would be willing to purchase not due to changes in the price of the commodity under
consideration but due to changes in the price of related commodity. For example:
Demand for tea is more not because price of tea has fallen but because price of coffee has
risen. Thus demand for substitutes take the form of cross demand.
Law of Demand
1. The law of demand states that as price increases (decreases) consumers will purchase
less (more) of the specific commodity. Demand varies inversely with price.

As price falls from P1 to P2 the quantity demanded increases from Q1 to Q2. This is a
negative relation between price and quantity, hence the negative slope of the demand
schedule; as predicted by the law of demand.
Demand curve has a negative slope, i.e, it slopes downwards from left to right depicting
that with increase in price, quantity demanded falls and vice versa. The reasons for a
downward sloping demand curve can be explained as follows-
1. Income effect- With the fall in price of a commodity, the purchasing power of
consumer increases. Thus, he can buy same quantity of commodity with less money or he
can purchase greater quantities of same commodity with same money. Similarly, if the
price of a commodity rises, it is equivalent to decrease in income of the consumer as now
he has to spend more for buying the same quantity as before. This change in purchasing
power due to price change is known as income effect.
2. Substitution effect- When price of a commodity falls, it becomes relatively cheaper
compared to other commodities whose prices have not changed. Thus, the consumer tend to
consume more of the commodity whose price has fallen ,i.e, they tend to substitute that
commodity for other commodities which have now become relatively dear.
3. Law of diminishing marginal utility– It is the basic cause of the law of demand. The law
of diminishing marginal utility states that as an individual consumes more and more units of a
commodity, the utility derived from it goes on decreasing. So as to get maximum satisfaction,
an individual purchases in such a manner that the marginal utility of the commodity is equal to
the price of the commodity. When the price of commodity falls, a rational consumer purchases
more so as to equate the marginal utility and the price level. Thus, if a consumer wants to
purchase larger quantities, then the price must be lowered. This is what the law of demand also
states.
Changes in demand for a commodity can be shown through the demand curve in two ways: (1)
Movement along the demand curve(Extension and contraction ) and (2) Shifts of the demand
curve( Increase and decrease).

Determinants of demand
Various factors affect the quantity demanded by a consumer of a good or service.
The key determinants of demand are as follows
1. Price of the good: This is the most important determinant of demand. The
relationship between price of the good and quantity demanded is generally inverse as we
will see later while studying law of demand
2. Price of related goods:
Substitutes: If the price of a substitute goes down than the quantity demanded of the
good also goes down and vice versa.
Complementary goods: If the price of gasoline goes up the quantity demanded of
automobiles will go down. Thus the price of complements have an inverse
relationship with the demand of a good
3. Income: Higher the income of the consumer the more will be quantity demanded of
the good. The only exception to this will be inferior goods whose demand decreases
with an increase in income level
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4. Individual tastes and preferences: a preference for a particular good may affect the
consumer‟s choice and he / she may continue to demand the same even in rising
prices scenario
5. Expectations about future prices & income: If the consumer expects prices to rise
in future he / she may continue to demand higher quantities even in a rising price
scenario and vice versa
Exceptions to the law of demand
Unlike other laws, law of demand also has few exceptions i.e. there is no inverse
relationship between price and quantity demanded for these goods. Few of them are as
follows:
1. Giffen goods: These are those inferior goods whose quantity demanded decreases
with decrease in price of the good. This can be explained using the concept of income
effect and substitution effect
2. Commodities which are regarded as status symbols: Expensive commodities like
jewellery, AC cars, etc., are used to define status and to display one‟s wealth. These
goods doesn‟t follow the law of demand and quantity demanded increases with price
rise as more expensive these goods become, more will be their worth as a status
symbol.
3. Expectation of change in the price of the goods in future: if a consumer expects
the price of a good to increase in future, it may start accumulating greater amount of
the goods for future consumption even at the presently increased price. The same
holds true vice versa

Elasticity of demand
Elasticity of Demand:
The elasticity of demand measures the responsiveness of quantity demanded to a change
in any one of the above factors by keeping other factors constant. When the relative
responsiveness or sensitiveness of the quantity demanded is measured to changes in its
price, the elasticity is said be price elasticity of demand.
Types of Elasticity of Demand
The quantity of a commodity demanded per unit of time depends upon various factors
such as the price of a commodity, the money income of the consumer and prices of
related goods, the tastes of the people, etc. Whenever there is a change in any of the
variables stated above, it brings about a change in the quantity of the commodity
purchased over a specified period of time. The three main types of elasticity are now
discussed in brief.

(1) Price Elasticity of Demand:

The concept of price elasticity of demand is commonly used in economic literature.
Price elasticity of demand is the degree of responsiveness of quantity demanded of a
good to a change in its price. Precisely, it is defined as the ratio of proportionate change
in the quantity demanded of a good caused by a given proportionate change in price. The
formula for measuring price elasticity of demand is:

Price Elasticity = Percentage change in quantity demanded

Percentage change change in price
= Δq / q † ΔP / P
Example. Let us suppose that price of a good falls from Rs.10 per unit to Rs.9 per unit
in a day. The decline in price causes the quantity of the good demanded to increase from
125 units to 150 units per day, The price elasticity using the simplified formula will be:
Ep = Δq / ΔP x P / q
Δq = 150 - 125 = 25 ΔP = 10 - 9 = 1
Original quantity = 125 Original price = 10
Ep = 25 / 1 x 10 / 125 = 2. The elasticity coefficient is greater than
one. Therefore the demand for the good is elastic.

(2) Income Elasticity of Demand:

Income is an important variable affecting the demand for a good. When there is a change
in the level of income of a consumer, there is a change in the quantity demanded of a
good, other factors remaining the same. The degree of change or responsiveness of
quantity demanded of a good to a change in the income of a consumer is called income
elasticity of demand. Income elasticity of demand can be defined as the ratio of
percentage change in the quantity of a good purchased, per unit of time to a percentage
change in the income of a consumer.
Ey = Percentage change in demand
Percentage change in income
Ey = Δq / Δy x y / q
Let us assume that the income of a person is Rs.4000 per month and he purchases six
CDs per month. Let us assume that the monthly income of the consumer increases to
Rs.6000 and the quantity demanded of CD's per month rises to eight .The elasticity of
demand for CDs will be calculated as under:
Δq = 8 - 6 = 2 Δy = 6000 - 4000 = 2000

Original quantity demanded = 6 Original income 4000

Ey = Δq / Δy x y / q = 2 / 200 x 4000 / 6 = 0.66
The income elasticity is 0.66 which is less than one.

(3) Cross Elasticity of Demand:

The concept of cross elasticity of demand is used for measuring the responsiveness of
quantity demanded of a good to changes in the price of related goods. Cross elasticity of
demand is defined as the percentage change in the demand of one good as a result of the
percentage change in the price of another good.. The formula for measuring cross
elasticity of demand is:
Exy = % change quantity demanded of good
X % change in price of good Y
The numerical value of cross elasticity depends on whether the two goods in question are
substitutes, complements or unrelated.
For example: Coke and Pepsi

Degrees of Price Elasticity of Demand:

The economists grouped various degrees of elasticity of demand into five categories.
(1) Infinitely elastic,
(2) Perfectly inelastic,
(3) Unit elasticity,
(4) Relatively elastic, and
(5) Relatively inelastic demand.
(1) Perfectly inelastic demand: When the quantity demanded of a good does not change
at all to whatever change in price, the demand is said to be perfectly inelastic or the
elasticity of demand is zero.
(2) Perfectly elastic demand: A perfectly elastic demand curve DD/ is a horizontal line
which indicates that the quantity demanded is extremely (infinitely) responsive to price.
Even a slight rise in price drops the quantity demanded of a good to zero. The curve DD /
is infinitely elastic. This elasticity of demand as such is equal to infinity.

(3) Unitary elastic demand: When the quantity demanded of a good changes by exactly
the same percentage as price, the demand is said to be unitary elastic.
Refer Text book
(4) Relatively elastic demand: If a given proportionate change in price causes relatively
a greater proportionate change in quantity demanded of a good, the demand is said to be
relatively elastic. Alternatively, we can say that the elasticity of demand is greater than I.
(5) Relatively Inelastic demand: When a given proportionate change in price causes a
relatively less proportionate change in quantity demand, demand is said to be inelastic.
The elasticity of a good here is less than I or less than unity.

Factors Determining Price Elasticity of Demand:

(i) Degree of necessity: If the consumption of the commodity or commodities is essential
and necessary, the demand for those commodities is said to be relatively inelastic. In
developing countries of the world, the per capital income of the people is generally low.
They spend a greater amount of their income on the purchase of necessaries of life such
as wheat, milk, course cloth etc. They have to purchase these commodities whatever be
their price. The demand for goods of necessities is, therefore, less elastic or inelastic. The
demand for luxury goods, on the other hand is greatly elastic whose consumption can be
postponed. For example, refrigerators, televisions etc

(ii) Availability of substitutes. If a good has greater number of close substitutes

available in the market, the demand for the good will be greatly elastic. For examples, if
the price of Coca Cola rises in the market, people will switch over to the consumption of
Pepsi Cola. which is its close cheaper substitute. So the demand for Coca Cola is elastic.
(iii) Proportion of the income spent on the good: If the proportion of income spent on
the purchase of a good is very small, the demand for such a good will be inelastic. For
example, if the price of a box of matches or salt rises by 50%, it will not affect the
consumers‟ demand for these goods. The demand for salt, match box therefore will be
inelastic. On the other hand, if the price of a car rises from Rs.6 lakh to Rs.9 lakh and it
takes a greater portion of the income of the consumers, its demand would fall. The
demand for car is, therefore, elastic.
(iv) Time. The period of time plays an important role in shaping the demand curve. In the
short run, when the consumption of a good cannot be postponed, its demand will be less
elastic. In the long run if the rise price persists, people will find out methods to reduce the
consumption of goods. For example: if the price of electricity goes up, it is very difficult
to cut back its consumption in the short run than in the long run by adoption of available
alternatives.
(v) Number of uses of a good. If a good can be put to a number of uses, its demand is
more elastic (Ep > 1). For example, if the price of coal falls, its quantity demanded will
rise considerably because demand will be coming from households, industries, railways
etc.

Practical Importance of Elasticity of Demand:

1. Importance in taxation policy: The concept has immense importance in the sphere
of government finance. When a finance minister levies a tax on a certain commodity, he
has to see whether the demand for that commodity is elastic or inelastic. If the demand is
inelastic, he can increase the tax and thus can collect larger revenue.
2. Price discrimination by monopolist: If the monopolist finds that the demand for his
commodities is inelastic, he will at once fix the price at a higher level in order to
maximize his net profit. In case of elastic demand, he will lower the price in order to
increase, his sales and derive the maximum net profit.
3. Importance to businessmen: When the demand of a good is elastic, they increases
sale by lowering its price. In case the demand is inelastic, they charge higher price for a
commodity.
4. Help to trade unions. The trade unions can raise the wages of the labor in an
industry where the demand of the product is relatively inelastic. On the other hand, if the
demand, for product is relatively elastic, the trade unions cannot press for higher wages.
5. Use in international trade: The terms of trade between two countries are based on
the elasticity of demand of the traded goods.
6. Determination of rate of foreign exchange: The rate of foreign exchange is also
considered on the elasticity of imports and exports of a country.

7. Guideline to the producers: The concept of elasticity provides a guideline to the

producers for the amount to be spent on advertisement. If the demand for a commodity is
elastic, the producers shall have to spend large sums of money on advertisements for
increasing the sales.
8. Use in factor pricing: The factors of production which have inelastic demand can
obtain a higher price in the market then those which have elastic demand. This concept
explains the reason of variation in factor pricing.

LAW OF SUPPLY, SUPPLY SCHEDULE, SUPPLY CURVE

SUPPLY
Meaning of supply
It is the amount of a commodity that sellers are able and willing to offer for sale at
different prices per unit of time. In the words of Meyer “Supply is a schedule of the
amount of a good that would be offered for sale at all possible prices at any period of
time; e.g., a day, a week, and so on”.
Difference/Distinction between Supply and Stock:
Supply refers to that quantity of the commodity which is actually brought into the market
for sale at a given price per unit of time. While Stock is meant the total quantity of a
commodity this exists in a market and can be offered for sale at a short notice. The supply
and stock of a commodity in the market may or may not be equal if the commodity is
perishable, like vegetables, fruits, fish, etc; then the supply and stock are generally the
same. But in case if a producer finds that the price of his product is low as compared to
its cost of production, he tries to withhold the entire or a part of a stock. In case of a
favorable price, the producer may dispose off large quantities or the entire stock of his
commodity; it will all depend upon his own valuation of the commodity at that particular
time.
Market supply
Consider the supply schedule below:
Quantity supplied by Market Supply
Price

Rs A B C A+B+C
10 40 60 80 180
8 30 45 60 135
6 22 33 44 99
4 15 23 30 68
2 10 15 20 45

We can see in the above table, the supply schedule of three producers A, B and C for
various price levels. As seen in the table above the supply of goods decreases as the price
of the goods fall. Now consider that the market consists of only these three suppliers, so
the market supply will be the sum of the goods supplied at various price levels all other
things remaining same. The same is depicted using the charts below. The first three charts
show the individual supply curve of A, B and C as per the supply schedule above, while
the chart below that depicts the market supply curve i.e. the aggregate supply of A, B and
C

Law of Supply
The law of supply states that the quantity of a good offered or willing to offer by the
producer/owners for sale increase with the increase in the market price of the good and
falls if the market price decreases, all other things remaining unchanged An increase in
price will increase the incentive to supply which means that supply curves will slope
upwards from left to right. Supply curves can be curves or straight lines. Consider the
supply of labour as in the figure below:
The above supply curve shows the hours per week at job by the labour on the X axis and
hourly wages on the Y axis. As we can see that as the hourly wages increase the hours
spent on job also increases. Thus the supply curve is a left to right upward sloping curve
Determinants of supply
Quantity supplied of a good/ service is affected by various factors. Several key factors
affecting supply are discussed as below:
Price of the product: Since the producer always aims for maximising his
returns/profit, so the quantity supplied changes with increase or decrease in the price of
the good.
Technological changes: Advanced technology can yield more quantity and at lesser
costs. This may result in the producer to be willing to supply more quantity of the goods
Resource supplies and production costs: Changes in production costs like wage
costs, raw material cost and energy costs might impact the producers‟ production and
eventually the supply. An increase in such cost might result in lesser quantities produced
and thus lesser quantities supplied and vice versa
Tax or subsidy: Since the producer aims to minimise costs and expand profit, an
increase in tax will increase the total cost, thereby decreasing the supply. Similarly a
subsidy might incentivize the producer to supply more of that goods in order to maximise
his profits. Tax and subsidy are two important tools used by central government to
control supplies of certain goods. For example an increase in tax can be used to reduce
the supply of cigarettes, while increase in subsidy can be used to increase the supply of
fertilizers
Expectations of prices in future: An expectation that the prices of goods will fall in
future might lead to lessen the production by the producer and thereby decrease the
supply and vice-versa.
Price of other goods: A producer might have several options to produce. Since the
money to invest is limited with the producer he would decide to produce the good which
offers him the maximum profit. Thus if the producer is currently producing good A and
the price of good B increases than he might switch to producing good B as this would
result in better returns for him.
Number of producers in the market: This is a very important factor or determinant
of supply. If there are large number of producers or sellers in the market willing to sell
goods then the supply of good will increase and vice versa
Supply function
Supply function expresses the relationship between supply and the factors (the
determinants of supply, as discussed above) affecting the producer/supplier to offer goods
for sale.
For instance take the supply function as below
Qs = f( P, Prg, S )
where;P = price;
Prg = price of related goods;
and S = number of producers.
 The supply curve is the graphical representation of the supply function and it
shows the quantity of a good that the seller is offering or willing to offer at various prices
Increase and decrease in supply, contraction and extension of supply, factors
affecting supply.
Movement along the Supply curve (Extension and contraction)
Movement along the supply curve happens due to change in the price of the good and
resulting change in the quantity supplied at that price.
For instance, an increase in the price of the good from P1 to P2 in the figure below results
in an increase of quantity supplied of the good from Q1 to Q2. This movement from point
A to point B on the supply curve S due to change in price of the good all other factors of
supply remaining unchanged is called movement along the supply curve.

Shifts in the Supply curve

Shift in the supply curve is also sometimes referred as a change in supply. This happens
due to changes in factors of supply other than that of price of the good For example, if the
price of a factor or of a related good increases the supply curve shifts. Similarly changes
in technology and government tools like tax and subsidy tends to shift supply curve.
 The supply curve can shift to the right or left as shown in the figure. A shift towards the
right i.e. from S1 to S2 curve denotes an increase in supply of the good. Similarly a
shift in the supply curve from S1 to S3 denotes a decrease in supply of the good.
As seen in the figure above a rightward shift in the supply curve from S1 to S2 increases
supply from Q1 to Q2 while the price of the good remains same at P1. Similarly a
leftward shift from S1 to S3 decreases supply from Q1 to Q3 whilst the price remaining
unchanged at P1
Factors affecting changes in supply:
The factors causing Shifts in supply curve are
i.Changes in Factor Prices: If the prices of the various factors of production fall down,
it will result in lowering the cost of production and so an increase in the supply on
varying prices.
i. Changes in Technique: If an improvement in technique takes place in a particular
industry, it will help in reducing its cost of production. This will result in greater
production and so an increase in the supply of the commodity. The supply curve will
shifts to the right of the original supply curve.
ii.Improvement in the Means of Transport: The supply of the commodity may also
increase due to improvement in the means of communication and transport. If the means
of transport are cheap and fast, then supply of the commodity can be increased at a short
notice at lower price.
iii. Climatic Changes in case of Agricultural Products: The supply of agricultural
products is directly affected by the weather conditions and the use of the better methods
of production. If rain is timely, plentiful, well-distributed and improved methods of
cultivation are employed then other things remaining the same, there will be bumper
crop. It would then be possible to increase the supply of the agricultural products.
iv. Political Changes: The increase or decrease in supply may also take place due to
political disturbances in a country. If country wages wars against another country or some
kind of political disturbances take place just as we had at the time of partition, then the
channels of production are disorganized. It results in the decrease of certain goods the
supply curve shifts to the left of originals curve.
v.Taxation Policy: If a government levies heavy taxes on the import of particular
commodities, then the supply of these commodities is reduced at each price. The supply
curve shifts to the left, conversely, if the taxes on output in the country are low and
government encourages the import of foreign commodities, then the supply can be
increased easily. The supply curve shifts to the right of original supply curve.
vi. Goals of firms. If the firms expect higher profits in the future, they will take the risk and
produce goods on large scale resulting in larger supply of the commodities. The supply
curve shifts to the right.
Elasticity of supply, kinds of elasticity of supply – perfectly elastic, perfectly
inelastic, relatively elastic, relatively inelastic and unitary elastic - factors
affecting elasticity of supply.
Elasticity of Supply:

Elasticity of Supply: it is defined as the responsiveness or sensitiveness of supply to the

changes in the price of the good.
The extent to which quantity supplied of a commodity changes with the given
change in the price refers to elasticity of supply.
There are five degrees of elasticity of supply. They are discussed in brief as under:
(i) Perfectly elastic supply. Supply curve in graph 7.1 (a) is perfectly elastic
(horizontal). The firm will supply any amount of output at Rs.4 per unit. If the price falls
below Rs.4 (say Rs.3.5) per unit, then the quantity supplied falls to zero. The price is too
low to sustain any producer in the market. Elasticity of supply is infinite.
(ii) Perfect inelastic supply. A perfectly inelastic supply represents a situation in which
sellers sell a fixed quantity of good for sale. The price increase from Rs.4 to Rs. 8 has not
fed to increase in quantity supplied. The quantity supplied is totally unresponsiveness to
changes in price. The supply curve is vertical = Es = 0.
(iii) Unit elastic supply. In case of unit elasticity of supply, the percentage change in
price brings about the same percentage change in quantity supplied of a good. In figure
7.1(c) doubling the price of a good from Rs.4 to Rs.8 per unit doubles the quantity
supplied .from 40 to 80 units Es = 1.

(iv) Elastic supply. When the percentage increase in the price of a good brings about, a
larger percentage increase in the supply of a good, the supply of a good said to elastic
Fig. 7.1(d) shows a 25% increase in the price of a good (Rs.4 to Rs.5), causes a 100%
increases in the supply of goods (from 40 to 80 units per day) (Es >1). The supply curve
has a flatter slope.
(v) Inelastic supply. When the percentage change in price of a good causes a smaller
percentage in quantity supplied, the supply is said to be inelastic (Es < 1). In fig. there is
an 100% increase in the price of good (from Rs.4 to Rs.8) but itbrings a 25% increase in-
the quantity supplied (40 to 50 units per day). The supply curve is steeply sloped.

Note: The category of elasticity of supply at any point on the supply curve can be judged
by drawing a tangent to the point of the curve under consideration. If the tangent meets
the vertical axis, then supply is elastic at that point and its value will be between one and
infinity.. In case it touches, the horizontal axis, then the supply of the good is inelastic at
that point and its value will lie between zero and one. Any straight line supply curve
through the origin will have unitary elastic.

Determinants of Price Elasticity of Supply:

The main factors which determine the degree of price elasticity of supply are as under:
(i) Time period. Time is the most significant factor which affects the elasticity of supply.
If the price of a commodity rises and the producers have enough time to make adjustment
in the level of output, the elasticity of supply will be more elastic. If the time period is
short and the supply cannot be expanded after a price increase, the supply is relatively
inelastic.
(ii) Ability to store output. The goods which can be safety stored have relatively elastic
supply over the goods which are perishable and do not have storage facilities.
(iii) Factor mobility. If the factors of production can be easily moved from one use to another, it
will affect elasticity of supply. The higher the mobility of factors, the greater is the elasticity of
supply of the good and vice versa.
(iv) Changes in marginal cost of production. If with the expansion of output, marginal cost
increases and marginal return declines, the price elasticity of supply will be less elastic to that
extent.
(v) Excess supply. When there is excess capacity and the producer can increase output easily to
take advantage of the rising prices, the supply is more elastic. In case the production is already
up to the maximum from the existing resources, the rising prices will not affect supply in the
short period. The supply will be more inelastic.
(vi) Availability of infrastructure facilities. If infrastructure facilities are available for
expanding output of a particular good in response to the rise in prices, the elasticity of supply
will be relatively more elastic.
Agricultural or industrial products. In agriculture, time is required to increase output in
response to rise in prices of goods. The supply of agricultural goods is fairly inelastic. As regards
the supply of manufactured consumer goods, it is comparatively easy to increase production in a
short period. Therefore, the supply of consumer goods is fairly more elastic; In case of supply of
aero planes or any other heavy machinery, the supply is relatively inelastic as it takes time to
manufacture heavy machinery