Elasticity of Supply

Elasticity of Supply measure of how responsive producers are to price changes in the marketplace. TIME is the biggest determinant of elasticity of supply. Short (term) Run  Inelastic Long (term) Run  Elastic All firms are inelastic for a certain period of time, over time they will become elastic.

Inelastic in the Short Run When the price changes, firms cannot immediately change their production/QS to respond to the new price. Short Run: over short periods of time, firms cannot easily change the size of their factories to make more or less of a good. They are limited in what changes they can make in a short period of time. Example: Dog Walker vs. Ford

Elastic in the Long Run Long Run: Over long periods of time, firms can easily change the size of their factories to make more or less of a good. They have the time & opportunity to make changes that they need to make. Example: Any type of manufactured goods, like books, cars, and TVs have elastic supplies because firms that produce them can run their factories longer in response to higher price.

What Affects Elasticity of Supply? How easily can a company respond to a price change? Supply will be more elastic over long periods of time (long run) than it would over a shorter period of time (short run). In the long run, firms have the ability to make changes in response to change in price.

Some industries have a difficult time responding to change in price. Some businesses are better able to adjust to the change in price. Those that do not require a lot of money, skilled labor or difficult to obtain resources. A dog walking business Some industries have a difficult time responding to change in price. Those that rely in large amounts of money or difficult to obtain resources. Car companies