Micro Foundations · intermediate
What moves on the Price Elasticity of Demand & Supply diagram
Fixed capacity in the short run makes quantity supplied unresponsive to price, steepening the supply curve and lowering price elasticityelasticityHow strongly one variable responds to another, usually quantity's percentage response to a price change. of supply.
Supply elasticityelasticityHow strongly one variable responds to another, usually quantity's percentage response to a price change. is about how easily producers can change output when the price changes.
In the short run, factories are already at capacity and new housing takes years to approve and build.
The supply curve steepens: even a big price rise brings only a small increase in quantity supplied.
Steep supply means inelastic supply, which is why demand surges in housing show up as price rises rather than more homes.
Examiners ask this as: inelastic supply, steeper supply, short run, fixed capacity, cannot expand.
Other scenarios on Price Elasticity of Demand & Supply