Supply Elasticity 2/28 Warm Up • When the Toyota Prius Hybrid Vehicle was first released in 2000 it was an instant hit. By 2001, people had to be put on a “wait list” in order to purchase the car. Toyota, seeing the popularity of the car and opportunity for profit, raised the sale price of the Prius. That did not stop people from wanting a Prius. Unfortunately, Toyota factories could not keep up with market demand. They were not capable of producing any more than they already were. IS THE SUPPLY OF THE PRIUS VEHICLE ELASTIC OR INELASTIC? EXPLAIN.
Transcript
Supply Elasticity 2/28Warm Up
• When the Toyota Prius Hybrid Vehicle was first released in 2000 it was an instant hit. By 2001, people had to be put on a “wait list” in order to purchase the car. Toyota, seeing the popularity of the car and opportunity for profit, raised the sale price of the Prius. That did not stop people from wanting a Prius. Unfortunately, Toyota factories could not keep up with market demand. They were not capable of producing any more than they already were.
IS THE SUPPLY OF THE PRIUS VEHICLE ELASTIC OR INELASTIC? EXPLAIN.
Elastic Supply• Example: – Goldfish platform shoes are making a comeback. – These shoes are flying off the shelves!
• Before plastic goldfish were cool, manufacturers used to sell 30,000 at $0.25/goldfish annually.
• “Goldfish are the hot new thing in fashion?” asks the manufacturers.
• Now Sketchers, Prada, and Nike are offering manufacturers $0.50/goldfish
• Manufacturers are more than happy to supply plastic goldfish at this high sale price. • Plastic is cheap• Goldfish are easy to make
– At that price they are able and willing to supply 500,000 annually
• Formerly, supplied 30,000 annually
• Now, supplying 500,000 annually
ELASTI
C!
Inelastic Supply
• Gasoline. People can’t quit that stuff.
• Between 2004-2008, the price of crude oil jumped from $35/barrel to $140/barrel.
• The quantity that OPEC was able to supply remained the same even though the sale price was much higher.
