October 2021 1 6 Report
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The Shape and Position of Supply Curves
(see pp. 324-328)
In competitive markets the shape, or elasticity of supply, reflects time in the production process, such as the immediate or market period, the short run, and the long run. Elasticity of supply is the relative change in price that induces a relative change in quantity supplied. The supply curve is a line on a diagram where the vertical axis measures price and the horizontal axis is quantity. Usually the coefficient of elasticity is positive, meaning that a rise in price induces an increase in the quantity supplied. In the immediate or market period, a given moment, time is defined as too short to allow for a change in output. The supply curve is vertical, and the coefficient of elasticity is zero.
The short run is defined as a' period sufficiently long to permit the producer to increase variable inputs, usually labor and materials, but not long enough -to permit changes in plant and equipment. The supply curve in the short run is less inelastic or more elastic than in the immediate period. The long run permits sufficient time for the-producer to increase plant and equipment. The longer the time, the greater the elasticity of supply.
Changes in supply are shifts in the position of supply curves. An increase in supply is a rightward movement of a supply curve, with more of the commodity being offered for sale at each possible price. Conversely, a decrease in supply shifts the supply to the left. An increase in supply can occur because sellers expect lower prices in the future, or, as in the agricultural sector, because of bountiful crops. The reverse is true of a decrease in supply. Over periods of time long enough for production processes to change, improvements in technology and changes in input prices and productivities are the main causes of changes in supply.
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