Supply Elasticity

1. Supply Elasticity Unit Three, Lesson Three Economics

2. Supply Elasticity • Supply curves, like demand curves, have different slops. • They can be more vertical or more horizontal, and this is due to differences in supply elasticity. • However, the determinants of a product’s supply elasticity is different than the determinants for demand elasticity.

3. Supply Elasticity • Supply elasticity is a measure of the way in which quantity supplied responds to a change in price. • Elastic supply—a small change in price results in a relatively larger change in quantity supplied • Inelastic supply—a small change in price results in a proportionally smaller change in quantity supplied • Unit Elastic—a change in price results in a proportionally equal change in Qs

4. War Production-WWII

5. Rosie The Riveter

6. Elastic Supply • Occurs when price changes are met with proportionally larger changes in Qs • The price changes, and the producer responds by increasing production. • The producer has the capability and capacity to increase production, there are no (or few) limits on how much they can produce.

7. Price increases lead to Increased Production

8. Elastic Supply • More horizontal • Price changes, and Qs responds even more

9. Inelastic Supply • Occurs when changes in price is met with a proportionally smaller change in Qs • Even if the producer wanted to increase or decrease Qs, they can’t. • There must be some sort of technical or natural constraint that will not allow producers increase production.

10. Inelastic Supply • More vertical • Producers do not have much control over Qs, even if prices change

11. Determinants of Supply Elasticity • The nature of its production is the only determinant to supply elasticity. • If a firm can adjust to new prices quickly, then supply is likely to be elastic. • If the nature of production is such that adjustments take longer, then supply is likely to be inelastic.