a price change or because of some development that lessened the usefulness of a factor (Keating & Keating, 2009).
Changes in product demand in relation to factor price reflect the price elasticity of demand of the factor. A low price elasticity of demand means that the proportionate change in demand is less than the proportionate change in price. A high price elasticity of demand means that the proportionate change in demand is greater than the proportionate change in price (Keating & Keating, 2009).
Supply is a measure of the total quantity of a factor that sellers are prepared to offer to consumers at different prices over a given period. Changes in factor supply in relation to factor price reflect the price elasticity of supply of the factor. A low price elasticity of supply means that the proportionate change in supply is less than the proportionate change in price. A high price elasticity of supply means that the proportionate change in supply is greater than the proportionate change in price (Keating & Keating, 2009).
Price reflects the equilibrium point (or intersection) of the demand and supply for a factor. Price is a measure of the quantity of money which must be exchanged for one unit of a factor. Equilibrium is the price point at which the quantity of a factor that is supplied is equal to the quantity of a factor that is demanded (Keating & Keating, 2009).
An externality is an outcome that is associated with an action that affects an entity (or entities) that was not a party that was involved in planning or implementing the action in question (Keating & Keating, 2009). Assume that a determination was made to the effect that an expansion of gravel supply to support construction activities was necessary. Assume further that an entrepreneur controlled a source of supply and was prepared the exploit the resource to satisfy the demand. Lastly, assume that the appropriate governmental au...