Supply is more elastic when firms have spare capacity, stocks, mobile resources and time to respond.
Time: supply is usually more elastic in the long run. In the short run firms may be stuck with their current factory and workers. Over time they can build, hire and train.
Spare capacity: a firm with idle machines and workers can raise output quickly, so its supply is elastic. A firm already working at full capacity cannot.
Stocks: a firm that can store its product and holds large stocks can release more when the price rises. Goods that go off quickly, such as fresh fish, are hard to store, so supply is less elastic.
Ease of switching resources: if workers and machines can move easily between products, supply is more elastic. Supply is inelastic when production takes a long time, as with crops, or needs specialist inputs.
- Time
- Supply is more elastic in the long run.
- Spare capacity and stocks
- Make supply more elastic.
- Perishable goods
- Hard to store, so supply is less elastic.
Worked example: Comparing two products
Compare the supply of T-shirts with the supply of durians.
- T-shirts: factories can add a shift, use spare machines and store finished shirts. Supply is elastic.
- Durians: trees take years to grow and the fruit spoils within days. Supply is inelastic, especially in the short run.
- So when prices rise, T-shirt output rises quickly but durian output barely changes this season.
Watch out for this
Supply is inelastic whenever demand is inelastic.
PES and PED are separate. PES depends on producers: their spare capacity, stocks and time to adjust. Buyers' behaviour does not decide it.
Check your understanding
Which firm is likely to have the most elastic supply?
- A toy maker with unused machines and a warehouse full of stock
- A fishing boat whose catch must be sold the same day
- A farm growing a crop that takes two years to mature