The Variety of supply Curves

Because the price elasticity of supply measures the responsiveness of quantity supplied to the price it is reflected in the appearance of the supply curve. In the extreme case of a zero elasticity supply is perfectly inelastic and the supply curve is vertical. In this case the quantity supplied is the same regardless of the price. As the elasticity rises the supply curve gets flatter which shows that the quantity supplied responds more to changes in the price. At the opposite extreme shown in supply is perfectly elastic. This occurs as the price elasticity of supply approaches infinity and the supply curve becomes horizontal meaning that very small changes in the price lead to very large changes in the quantity supplied.

In some markets the elasticity of supply is not constant but varies over the supply curve. A typical case for an industry in which firms have factories with a limited capacity for production. For low levels of quantity supplied the elasticity of supply is high indicating that firms responds substantially to changes in the price. In the region firms have capacity for production that is not being used, such as plants and equipment idle for all or part of the day. Small increases in price make it profitable for firms to begin using this idle capacity. As the quantity supplied rises firms begin to reach capacity. Once capacity is fully used increasing production further requires the construction of new plants. To induce firms to incur this extra expense the price must rise substantially so supply becomes.

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