Micro - Price Elasticity Of Supply ✔️ Flashcards
formula to calculate price elasticity of supply
% Change in quantity supplied / % Change in price
Interpret numerical values of price elasticity of supply:
0 Perfectly inelastic
0 to +1 Relatively inelastic
+1 to ∞ Relatively elastic
∞ Perfectly elastic
Factors that influence price elasticity of supply
Time period: The shorter the time period, the more inelastic the supply will be, as firms may not be able to adjust production levels quickly in the short term. The longer the time period, the more elastic the supply will be, as firms will have more time to adjust to price changes.
Production costs: The higher the production costs, the more inelastic the supply will be, as firms will be less likely to increase production even if the price increases. Conversely, the lower the production costs, the more elastic the supply will be, as firms will be more likely to increase production if the price increases.
Number of suppliers: The more suppliers of a good or service, the more elastic the supply will be. Conversely, the fewer suppliers of a good or service, the more inelastic the supply will be.
Importance of the good in the production process: The more crucial the good or service is to the production process, the more inelastic the supply will be, as firms will be less likely to adjust the production levels. On the other hand, the less crucial the good or service is to the production process, the more elastic the supply will be, as firms will be more likely to adjust production levels in response to price changes.
Scalability of production: If the production can be quickly scaled up or down, the supply will be more elastic. Conversely, if the production process is difficult to scale, the supply will be more inelastic.
Flexibility of production: If the production process is flexible and can be easily shifted to produce different goods, the supply will be more elastic. Conversely, if the production process is specific to a certain good or service, the supply will be more inelastic.