Economics, 3rd Edition

The Determinants of Price Elasticity of Supply

The Time Period 

In most markets, a key determinant of the price elasticity of supply is the time period 

being considered. Supply is usually more elastic in the long run than in the short run. We can further dis-

tinguish between the short run and the very short run. Over very short periods of time, firms may find it 

impossible to respond to a change in price by changing output. In the short run firms cannot easily change 

the size of their factories or productive capacity to make more or less of a good but may have some flexib-

ility. For example, it might take a month to employ new labour but after that time some increase in output 

can be accommodated. Overall, in the short run, the quantity supplied is not very responsive to the price. 

By contrast, over longer periods, firms can build new factories or close old ones, hire new staff, and buy in 

more capital and equipment. In addition, new firms can enter a market and old firms can shut down. Thus, 

in the long run, the quantity supplied can respond substantially to price changes.