Elasticity of Supply Flashcards
Elasticity of Supply
\+ A measure of the responsiveness of the quantity supplied to a price change. \+ The elasticity of supply measures the responsiveness of the quantity supplied to a change in the price of a good when all other influences on selling plans remain the same.
What determines supply elasticity?
+Number of producers: ease of entry into the market.
+Spare capacity: it is easy to increase production if there is a
shift in demand.
+Ease of switching: if production of goods can be varied, suppl
is more elastic.
+Ease of storage: when goods can be stored easily, the elastic
response increases demand.
+Length of production period: quick production responds to a
price increase easier.
+Time period of training: when a firm invests in capital the
supply is more elastic in its response to price increases.
+Factor mobility: when moving resources into the industry is
easier, the supply curve in more elastic.
+Reaction of costs: if costs rise slowly it will stimulate an
increase in quantity supplied. If cost rise rapidly the stimulus to
production will be choked off quickly.
1 2
+The amount of time it takes producers to shift
resources between alternative uses to alter
production of a good can determine the degree
of price elasticity of supply.
+ The easier and more rapid the transfer of resources, the greater is
the price elasticity of supply.
+ The longer a firm has to adjust to a price change, the greater the
elasticity of supply.
Short run
+In the short run, producers are able to change the quantities of
some but not all the resources they employ.
+ This time period is too short to change plant capacity but long enough to
use fixed plant more or less intensively.
+ The supply of a product is more elastic than the market period.
inelastic-unit
Long run
In the long run, producers are able to change all the
resources they employ.
▻ This time period is long enough for firms to adjust their plant
sizes and for new firms to enter (or existing firms to exit) the
industry.
▻ The supply of a product is more elastic than in the short run.
Market Period
Perfectly Inelastic
more producers
elastic
spare capacity: easily increase production
elastic
ease of switching: cannot be varied
inelastic
quick production
elastic
time period of : a firm does not invest in capital the
supply
inelastic
difficult to transport
inelastic
rapid reaction of cost
inelastic
gradual reaction of cost
elastic