2.4 Price Elasticity of Supply
Price elasticity of supply = %ΔQs ÷ %ΔP, how strongly producers respond to a price change; supply grows more elastic as the time horizon lengthens.
Price elasticity of supply (Es) is the percentage change in quantity supplied divided by the percentage change in price. Es > 1 is elastic, Es < 1 inelastic; it is always positive because supply slopes upward, so no absolute-value step is needed.
Time is the dominant determinant. In the immediate market period supply can be perfectly inelastic (a vertical line — the fish already caught today), in the short run firms can vary some inputs, and in the long run firms can build capacity and enter, making supply flatter and more elastic.
Elasticity of supply also rises when inputs are easy to obtain, production can be scaled without steep cost increases, and goods can be stored. Expect a question pairing supply elasticity with tax incidence in topic 2.8: the more inelastic side of a market bears more of a tax.
Key terms for 2.4
Drag the curves yourself — the fastest way to make 2.4 stick.
Recycling demand's determinants (substitutes, necessity, income share) for supply elasticity. Supply elasticity is about production flexibility and TIME — the longer the horizon, the more elastic supply becomes.
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