Question

How would you expect the elasticity of supply of product X to differ in a situation

of full employment in Industry X on the one hand, and of considerable unemployment in the industry on the other hand?

Answer 1

Case 1 - Considerable unemployment

If product X is non durable then supply in the short run is less elastic than in the long run. This is due to the capacity constraint of the firm. Of course, the supply can be increased in short run too but it will be very less as compared to when there is capacity enhancement.

If product X is durable from the point of view of supplier i.e. secondary market for scrap metals then supply in the short run is more elastic than in the long run. This is because with the change in price melting of scrap metals increases which increases the supply of metal.

Case 2 - Full employment

Whether the product is durable or non durable, the short and long run supply is perfectly inelastic. This is because firm can not enhance its capacity.