Economics Elasticity Of Supply Questions Long
In perfectly inelastic supply, the relationship between price and quantity supplied is such that the quantity supplied remains constant regardless of changes in price. This means that the supply curve is vertical, indicating that the quantity supplied does not respond to changes in price.
In this scenario, the supply of a good or service is completely unresponsive to changes in price. This could occur when the production of a good requires a fixed amount of resources or inputs that cannot be easily adjusted in the short run. For example, if a farmer has a fixed amount of land and can only produce a certain quantity of crops, regardless of the price, the supply of those crops would be perfectly inelastic.
As a result, the price elasticity of supply (PES) in a perfectly inelastic supply is zero. This means that a change in price will not lead to any change in the quantity supplied. The PES formula, which measures the responsiveness of quantity supplied to changes in price, is calculated as the percentage change in quantity supplied divided by the percentage change in price. In the case of perfectly inelastic supply, the percentage change in quantity supplied is zero, resulting in a PES of zero.
It is important to note that perfectly inelastic supply is a theoretical concept and rarely exists in the real world. Most goods and services have some degree of elasticity, meaning that the quantity supplied will respond to changes in price, albeit to varying degrees. However, understanding the concept of perfectly inelastic supply helps to illustrate extreme cases and the limits of supply responsiveness to price changes.