Economics – The allocation of resources - Price elasticity of supply (PES) | e-Consult

Diagram:

The supply curve is typically upward sloping, reflecting the law of supply. The elasticity of supply refers to the responsiveness of quantity supplied to changes in price. The time available to producers is a crucial factor in determining supply elasticity.

Explanation:

If producers have a long time to respond to a change in price, the supply curve will be more elastic. This is because they can adjust their production levels, such as by increasing working hours, investing in new equipment, or finding alternative suppliers. A longer time horizon allows for greater flexibility in production.

Conversely, if producers have a short time to respond to a change in price, the supply curve will be more inelastic. This is because they have limited ability to adjust their production levels quickly. For example, a sudden increase in demand for a product that requires a long production process will result in a relatively inelastic supply in the short run.

Illustration: The diagram would show a flatter supply curve with a longer time horizon and a steeper supply curve with a shorter time horizon. The flatter curve indicates more elasticity.