Price elasticity of supply

Elastic supply means that the quantity supplied changes significantly in response to a change in price.

Inelastic supply means that the quantity supplied changes only slightly in response to a change in price.

In the short run, supply is often more inelastic because firms have limited time to adjust production. In the long run, supply tends to be more elastic as firms can invest in new capacity or enter/exit the market.

If a firm has a large stock of finished goods, supply will be more elastic. They can respond quickly to a price increase by selling from existing inventory. Perishable items are difficult to stock, leading to inelastic supply.

Firms with spare capacity (unused resources) can increase output quickly when prices rise, resulting in a more elastic supply. A factory working at full capacity will struggle to quickly increase supply, making it more inelastic.

Price Elasticity of Supply (PES) = (% Change in Quantity Supplied) / (% Change in Price). The result is a numerical value that indicates the degree of responsiveness.

PES = 15% / 5% = 3. Since PES is greater than 1, supply is elastic.

In the short-run, agricultural products tend to have inelastic supply due to the time it takes to grow crops/raise livestock. In the long-run, supply becomes more elastic as farmers can adjust planting decisions, invest in irrigation, or switch to different crops.