I am trying the answer the question:
If a good is produced using inputs for which there are no substitutes, the good's
- A. Elasticity of supply is likely to be small
- B. Elasticity of supply is likely to be large
- C. Elasticity for demand will be small
- D. Elasticity of demand will be large
I am unsure of the correct answer. I don't think it would be (C) or (D) as the question notes that what goes into the good is likely substitutes, not the good itself. That leaves (A) and (B) I don't however see how these would effect the elasticity of supply. Elasticity of supply is defined as % change in quantity supplied divided by % change in price. I am failing to see how the price of a substitute would affect what is in the numerator or denominator. How is the quantity supplied of a product and the price at which it is sold dependent on the fact the substitutes are unavailable? Producers could adjust either quantity or price in order to make up for the substitute-less good. I would greatly appreciate some insight.