ECON281 Lecture 5: 5
25 Feb 2019
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Elasticity of Supply
- Elasticity of supply ranges
• (from) Perfectly Elastic Supply
• Quantity supplied falls to 0 when there is any decrease in price
• (to) Perfectly Inelastic Supply
• Quantity supplied is constant no matter what happens to price
Elasticity of Supply: Depends On:
- 1. Resource substitution possibilities,
• The more unique the resource, the more inelastic the supply.
- 2. Time frame for the supply decision,
• Momentary supply
• Long-run supply
• Short-run supply
• Typically, the longer producers have to adjust to a price change, the more
elastic is supply.
Long-Run Elasticity of Demand
- For most goods, elasticity of demand is greater in the long run (curves are “flatter”)
• People are more able to adjust to changes over time (slowly switch
consumption)
- For essential durable goods (ie: Cars), long-run demand elasticity is less (curves are
“steeper”)
• People can change their purchases or suppliers now, but eventually they have to
buy new goods as old ones break
Long-Run Elasticity of Supply
- For most goods, elasticity of supply is greater in the long run (curves are “flatter”)
• Firms are more able to adjust to changes over time (slowly switch production)
- For reusable goods (ie: Aluminum), long-run supply elasticity is less (curves are
“steeper”)
• People resell their supplies when prices go up, but eventually their supplies run
out
When is the Long Run?
- The long run is how long a consumer or firm takes to fully adjust to a price change
• Time required to change ANY variable
• ie) Give up Pepsi Vanilla, Build more cost efficient Pepsi factory, secure a US
Pepsi Vanilla supplier
- The short run is anything shorter than the long run
• At least one variable cannot be changed
Cross Price Elasticity of Demand
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ECON281 Full Course Notes
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