Elafticity of Supply

Supply can be elastic or inelastic, just like demand. If the amount put on the market is highly responsive to price changes, the supply is elastic. If the amount offered is little affected by price variations, the supply is inelastic. Except that the amount supplied and the price ordinarily move in the same direction, whereas for demand the amount demanded and the price move in opposite directions, the two concepts are parallel.

Elasticity of supply varies with the time period involved. Take an extreme ease of inelastic supply first. Suppose you have a strawberry patch and a roadside stand, but no overnight refrigeration. If you picked 20 quarts this morning, you must sell them at whatever price you can get or let them spoil (neglecting the possibilities that you may eat them fresh yourself or preserve them). Thus your supply curve for the day may be completely inelastic—a vertical line at 20 quarts of strawberries. By the end of the day, if you have them left you’re willing to sell your 20 quarts at any price from zero up—the higher the better, of course. Figure 21-2 pictures this simple assumption, where cost of production appears to play no role.

FIG. 21-2 This chart shows completely inelastic supply.
The same number of quarts is offered at any price shown

Now take a case at the other extreme. Suppose some simple commodity like lead pencils can be reproduced almost without limit at a certain cost, say 3 cents per pencil, merely by duplicating existing manufacturing facilities, materials, and workers. Given enough time to build new facilities, almost any given number of pencils will be produced for sale at a price of 3 cents or above. Thus, the supply curve might be completely elastic—a horizontal line, at 3 cents per pencil, as in Fig. 21-3.

FIG. 21-3 This chart shows infinitely elastic suppiy. Given a long time to adjust, any number of pencils can be produced for sale at 3 cents per pencil.

This case, like that of strawberries, is oversimplified; cost per pencil may not be quite constant in the real world, and the resulting supply curve may not be perfectly flat. But both cases serve to indicate the variations that may prevail in the supply of different kinds of commodities, depending on the time period considered. Most cases and most time periods, of course, fall somewhere between these two extremes.