Price Elasticity of Supply

Price Elasticity of Supply

The measure of how much the quantity supplied of a good responds to a change in the price of that good.

Formula for Supply Elasticity

Supply elasticity = percent change in quantity supplied / percent change in price.

Elastic Supply

Occurs when a small change in price leads to a significant change in quantity supplied.

Inelastic Supply

Occurs when large changes in price result in minimal changes in quantity supplied.

Short Run Supply Elasticity

Inelastic in the short run as producers have less time to adjust.

Long Run Supply Elasticity

Elastic in the long run as producers have more time to adjust.

Determinants of Price Elasticity of Supply

Factors that influence how elastic or inelastic the supply of a good is.

Availability of Resources

If resources are easily available, supply is more elastic.

Flexibility of Production

If a firm can easily switch production between goods, supply is more elastic.

Spare Capacity

Firms with unused capacity can increase supply quickly, making it more elastic.

Storage Ability

Goods that can be stored (like canned food) have more elastic supply.

Mobility of Factors of Production

The easier it is to move labor or capital, the more elastic supply becomes.