A-Level Applying Demand and Supply Analysis

Price elasticity of supply (PES) measures how responsive quantity supplied is to a change in price, and it depends heavily on the time and ease with which firms can adjust output. Lead time is the delay between ordering/starting production and actually receiving/supplying the finished bicycles. As lead times lengthen, firms cannot raise quantity supplied quickly when prices rise, because production and delivery take longer and spare capacity is limited. Supply therefore becomes less responsive to price, i.e. PES falls and supply is more price-inelastic. So lengthening lead times are associated with more inelastic PES.

The war disrupted supply of fertiliser (sanctions, export restrictions, higher gas/energy costs feeding into fertiliser production), shifting global supply left and driving the world price of fertiliser sharply up. The key elasticity idea is price elasticity of demand (PED). Fertiliser demand is price-inelastic: it is an essential agricultural input with few close substitutes in the short run, so buyers cannot easily cut back. With inelastic demand, a rise in price causes a less-than-proportionate fall in quantity demanded. Total revenue = price x quantity. Because the proportionate rise in price exceeds the proportionate fall in quantity, total revenue rises. Hence, for the fertiliser Russia continues to export, the war-induced price increase would raise Russia's export revenue. (Caveat: if sanctions sharply cut the volume Russia is permitted to export, that separate quantity restriction could offset the revenue gain; but on price-elasticity grounds alone, inelastic demand means the higher price raises revenue.)