supply elasticity

Definition

The degree to which a price change for an item results from a unit change in supply. Supply elasticity is equal to percent change in quantity divided by percent change in price. The higher the ratio, the more dramatically the price changes in response to a change in supply. Supply elasticity of a product is usually dependent upon the current supply of that product. At low levels of supply, supply elasticity tends to be high and it becomes less so as supply rises. This is because as supply increases, it becomes more difficult for producers to increase supply further as production approaches full capacity.

Use supply elasticity in a sentence

We had studied the supply elasticity for some time now and came to some interesting conclusions which could help refine our expectations in the years to come.

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The supply elasticity that he discovered in the production of the tractor tires surprised him and he realized the corporation was ill-equipped to deal with the fluctuations.

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They were amazed at the supply elasticity of their products. If they had too much supply, then the demand suffered, but if they restricted the amount, the demand and price soared.

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