Determinants of price elasticity of supply

Determinants

time, nature of the industry, ability to store inventories

Time

• if producers can respond quickly to a price change, supply is price elastic. Supply is more inelastic in the short run since producers cannot quickly adjust output. Over time, supply becomes more elastic as producers can obtain inputs and expand production.

  • Example: Plumber supply is inelastic because training takes years, while babysitter supply is elastic since certification is quick.

Nature of the industry

• Some industries respond faster to price changes.

  • Agricultural goods are inelastic since production takes time (e.g., wheat requires a growing season).

  • Manufactured goods are more elastic since firms can quickly expand output. e.g. ipads

  • Service industries are highly elastic as people can enter and exit roles easily.

Ability to store inventories

• If goods can be stored, supply is elastic since producers can quickly respond to demand changes.

  • Example: Supermarkets can store non-perishables (elastic supply), but fresh produce is harder to store (inelastic supply).