ELASTICITY OF SUPPLY

DEFINITION

• Ratio between percentage change in quantity supplied to the percentage change in price.

SHORT RUN

• Short run,supply is inelastic whether the prices decreases or increases.
• If the price of a crate of oranges falls,the grove owner has a few ways to cut his supply which he invested years ago in land and trees,and his grove will provide oranges no matter what the price.

FACTORS OF ELASTICITY SUPPLY

• Time
• Stored products
• The producer
• Production capacity

ELASTICITY

• Elastic-sensitive products
• Inelastic-not a sensitive products

EXAMPLES

• While supply of oranges is inelastic,the supply of goods made from oranges is elastic.
• Producers can choose whether to produce more or less orange juice is from oranges.

LONG RUN

• Supply can become more elastic over time.

WHY ITS IMPORTANT

• Elasticity of supply tell us how fast supply respond to quantity demand and price increase.