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Microeconomics · Unit 2 · 2.4
AP Microeconomics · Supply and Demand
Price Elasticity of Supply
Supply elasticity is the percentage response of quantity supplied to price — positive, benchmarked at 1, and driven mostly by time to adjust.
key idea$E_s = \frac{\%\,\Delta Q_s}{\%\,\Delta P}$
The formula
Like demand elasticity, E_s is a percentage ratio with no units. The benchmark is again 1: above it supply is elastic, below it inelastic.
Elastic supply|E_s| > 1: quantity is very responsive
Inelastic supply|E_s| < 1: quantity barely moves
Key drivertime to adjust inputs and production
Perfectly inelastica vertical supply — fixed quantity
Working the numbers
| Time horizon | Ability to adjust | Supply is... |
|---|
| immediate | almost none | inelastic |
| short run | some inputs vary | more elastic |
| long run | all inputs vary | most elastic |
The more time sellers have to change inputs, the more elastic supply becomes — the single biggest determinant of E_s.
what makes supply elastic
- E_s is positive: price and quantity supplied move together.
- More time → more elastic supply.
- Spare capacity and cheap inputs also raise elasticity.
Worked examples
EX 1
Compute supply elasticity
computationPrice rises 20% and quantity supplied rises 10%. Find and name E_s.
1
Apply the formula
E_s = 10% ÷ 20% = 0.5.
2
Compare to 1
0.5 is less than 1.
3
Name it
Supply is inelastic in this range.
EX 2
Reason about time
reasoningWhy is a farmer’s crop supply inelastic this season but elastic over years?
1
This season
Acreage is fixed — little can change now.
2
Over years
The farmer can plant more and add equipment.
3
Conclude
More time makes supply more elastic.
EX 3
Spot perfectly inelastic supply
concept applicationOnly 500 original prints of an artwork exist. Describe the supply.
1
Check responsiveness
Quantity cannot rise with price.
2
Name it
Supply is perfectly inelastic.
3
Describe the curve
It is a vertical line at 500 units.
Watch out
Supply elasticity is positive
Unlike demand, E_s is positive: price and quantity supplied move the same direction.
Time is the main driver
The longer the horizon, the more inputs can adjust, so supply grows more elastic.
Perfectly inelastic is vertical
A fixed quantity (like land or a limited edition) gives a vertical supply curve, E_s = 0.
Check yourself
Write the price-elasticity-of-supply formula.
Show answer
E_s = %ΔQ_s ÷ %ΔP.
What is the main determinant of supply elasticity?
Show answer
The time sellers have to adjust inputs and production.
Compute E_s if price rises 20% and quantity supplied rises 10%.
Show answer
0.5 — inelastic.
What does a vertical supply curve mean?
Show answer
Supply is perfectly inelastic: quantity cannot respond to price.