Answer to Question #173884 in Microeconomics for Alex

Question

Are market supply curves typically more elastic in the short run or in the long run? Explain full detail.

Answer 1

Are market supply curves typically more elastic in the short run or the long run? Explain full detail.

The market supply usually is more elastic in the long run than in the short run. It is assumed that in the long run, a firm can utilize all production factors to increase supply, whereas, in the short run, the firm can increase only labour. They are generally perfectly elastic in the long run because consumer demand will have sufficient time to adjust fully to supply changes, and there is time for firms to enter or leave the industry.

The elasticity of supply of a firm is determined by factors such as availability of raw materials, spare production capacity, the ease and cost of factor substitution, length and complexity of production, mobility of factors of production period and production speed, excess capacity, and inventories’ storage capacities. Until these factors are allowed to adjust completely to the market forces, then supply elasticity is not fully elastic. Supply is more price elastic than the period that a firm is allowed to adjust its production levels. For example, in some agricultural markets, the short supply is fixed and determined mainly by planting decisions made months before and climatic conditions, which affect the production yield. In contrast, milk supply is price elastic because of a short period from cows producing milk and products reaching the marketplace.