Economics Elasticity Of Supply Questions Long
Short-run supply elasticity refers to the responsiveness of the quantity supplied of a good or service to a change in its price in the short run. It measures the percentage change in quantity supplied divided by the percentage change in price.
In the short run, the supply of a good or service is relatively inelastic due to the limited time period. This means that producers are unable to adjust their production levels significantly in response to changes in price. The main reason for this is that in the short run, producers face certain constraints that prevent them from easily changing their production capacity, such as fixed inputs, limited resources, and time constraints.
The formula to calculate short-run supply elasticity is:
Short-run supply elasticity = (% change in quantity supplied) / (% change in price)
If the short-run supply elasticity is less than 1, it indicates an inelastic supply, meaning that the percentage change in quantity supplied is less than the percentage change in price. This implies that producers are unable to adjust their output proportionally to changes in price.
On the other hand, if the short-run supply elasticity is greater than 1, it indicates an elastic supply, meaning that the percentage change in quantity supplied is greater than the percentage change in price. This implies that producers can adjust their output more than proportionally to changes in price.
The concept of short-run supply elasticity is important for understanding how changes in price affect the quantity supplied in the short run. It helps economists and policymakers analyze the responsiveness of producers to price changes and predict the impact on market equilibrium.
For example, if the short-run supply elasticity of a good is inelastic, a decrease in price will result in a relatively smaller increase in quantity supplied. This can lead to shortages or excess demand in the market. Conversely, if the short-run supply elasticity is elastic, a decrease in price will result in a relatively larger increase in quantity supplied, potentially leading to surpluses or excess supply.
Overall, the concept of short-run supply elasticity provides insights into the dynamics of supply in the short run and helps in understanding the behavior of producers in response to changes in price.