Supply Elasticity

Remember, Supply means the goods and products that are being brought to the market for sale. Supply elasticity – how changes in price affect the changes in quantity supplied. A measure of the way in which quantity supplied responds to a change in price.

 Elastic– a change in price causes a relatively larger change in quantity supplied.  Ex) As winter approaches, snowboard prices increase, and as a result the quantity supplied of snowboards increases substantially.  Inelastic – A change in price causes a relatively smaller change in quantity supplied.  Ex) The market for oil

 Unit Elastic – A change in price causes a proportional change in supply.  Proportional means that the changes in price and quantity supplied are the same percentage.  Ex) A 22% increase in price leads to a 22% decrease in quantity supplied. 22/22= 1.

► If consumers are willing to pay twice the price for goods, most producers will be able to get ready to significantly increase production.

If a business can react quickly to a change in prices and increase production, then supply is elastic. If a business can react quickly to a change in prices and increase production, then supply is elastic. If a business takes longer to react to a change in prices, then supply is likely to be inelastic. If a business takes longer to react to a change in prices, then supply is likely to be inelastic.