Elasticity Of Supply

Like demand curves, the shape and slope of supply curves of different products will vary, depending on their elasticity. The elasticity of supply measures the proportional change in quantity supplied following a price change. If a change in price has little effect on the quantity of a good or service offered for sale, the supply is inelastic. When a small change in price produces a large change in the quantity offered for sale, then the supply of the good or service is elastic.

At a high price, more items will be offered for sale than at a low price, and vice versa. If, for example, the wages that supermarkets paid for part-time, after-school help were to double from $4.25 to $8.50 per hour, there would be an increase in the number of students applying for those jobs. However, if the price of corn were to double from $2.75 to $5.50 per bushel, farmers could not rush more corn to market. Even though prices have increased by the same per­centage, the percentage increase in the number of job applicants will most likely be greater than the percentage increase of the amount of corn offered for sale. This is because their elasticity of supply is dif­ferent. The supply of after-school workers is rela­tively elastic, but the supply of corn is inelastic.

Goods or services that are easy to provide have an elastic supply, because sellers can increase or decrease production with price changes. Since there are many unemployed high school students, an increase in wages is likely to generate a large and immediate increase in the number of them willing to take a part-time job. As wages fall, these same job applicants will lose interest. They will decide that at the lower wages they would rather use their time for other things. So, the supply of after-school workers would be described as elastic.

Goods or services requiring time, skills, or tech­niques that are hard to acquire generally have an inelastic supply. It takes time to grow corn. Although the supply can be increased out of reserves farmers normally set aside for their livestock, eventually they will have to plant more corn. For that reason, the supply of corn is relatively inelastic.

Date: 2015-02-16; view: 994