What Is an Elastic Supply?

An elastic supply is the economic term for a product or good whose supply is significantly affected by a change in price. This is determined by the elasticity of supply, a measurement which is calculated by dividing the percentage change in quantity of supply by the percentage of change in the price. On a supply graph, an elastic supply would be represented by a line moving significantly to the right on a level just above horizontal. Most products that have such a relationship between supply and price are those that are considered non-essential and therefore will be spurned or embraced by consumers based on price changes.

Economists are acutely interested by the reaction between different economic stimuli and the purchasing habits of consumers. How price changes for a specific product are judged by consumers and producers is one of those important relationships. The laws of supply and demand govern many of the production decisions made in an open market economy, and the prices set for those products will act in turn on the supply and demand amounts. An elastic supply means that supply amounts are in a direct relationship with price changes for a product.

Perhaps the best way to understand an elastic supply would be to envision examples on a graph. Imagine a graph featuring the supply totals on the horizontal axis and the price levels on the vertical axis. If the supply is elastic, a slight change in price, represented by a slightly upward sloping line, will be accompanied by a significant change in supply, represented by the line moving sharply to the right. The end result would look like a nearly horizontal line from left to right.

One way to determine whether or not elastic supply is present is to measure the elasticity of supply. This is done by noting the change in price and the change on supply that price change causes. Rendering those totals as percentages of the former amounts and then dividing the change in supply by the change in price yields supply elasticity. If that amount is greater than one, the supply is said to be elastic. In elastic supply is generally defined as a score of less than one.

There are characteristics belonging to certain products that will cause them to have elastic supply. The main thing that needs to apply is that the supply of the product will be affected by even a minimal price change. This will often occur is there are substitutions available for the product in question, meaning that demand would fall if prices rose and, therefore, supply would fall in response.