Price Elasticity of Supply

Price Elasticity of Supply

• supply elasticity = percent change in quantity supplied/percent change in price

• When supply is elastic, a small change in price leads to a significant change in quantity supplied

• Inelastic supply means that even large changes in price result in minimal changes in quantity supplied

Price Elasticity of Supply Determinants

• short run - inelastic

• long run - elastic

• factors

  • time period – supply is more elastic in the long run because producers have more time to adjust

  • availability of resources – if resources are easily available, supply is more elastic

  • flexibility of production – if a firm can easily switch production (e.g., 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/capital, the more elastic supply becomes