Possibility of resource substitution
Some products and services can only be produced with unique or scarce production resources, so the supply elasticity of these products is very low, even 0. However, other products and services can be produced with commonly available resources, which can be widely used for various purposes, so the supply elasticity of this product is very high.
Van Gogh's oil painting is an example of a vertical supply curve (completely lacking supply elasticity) and a product with zero supply elasticity. At the other extreme, wheat can be planted on the land where corn is planted, so it is as easy to grow wheat as corn, and the opportunity cost of wheat expressed by waste corn is almost unchanged. In this way, the supply curve of wheat is almost horizontal, and its supply elasticity is very large. Similarly, when a product is produced in many different countries (for example, sugar and beef), the supply of the product is very flexible.
The supply of most products and services falls between these two extremes. Output can be increased, but only if the cost is higher. If the price is higher and the supply increases, the supply elasticity of these products and services is between 0 and ∞.
Supply decision time frame
In order to study the influence of time on supply after price changes, we distinguish three supply time frames:
1. Instant supply
long-term supply
3. Short-term supply
When the price of a product rises or falls, the instantaneous supply curve shows the immediate response of supply after the price changes.
Some products, such as fruits and vegetables, are completely inelastic instant supply-a vertical supply curve. Supply depends on previous planting decisions. For example, in the case of oranges, the decision of planting must be made many years before harvest. The instant supply curve is vertical, because on a certain day, no matter what the price of oranges is, producers can't change the output. They have selected, packaged and delivered their products to the market, and the quantity provided on that day is fixed.
On the contrary, some products are completely flexible for immediate supply, and long-distance telephone calls are an example. When many people are talking at the same time, the demand for telephone lines, computer wiring and satellite time has greatly increased, and the purchase volume has increased, but the price has remained unchanged. The long-distance telephone office monitors the fluctuation of demand and changes the line to ensure that the supply and demand are equal under the condition of constant price.
The long-term supply curve shows the response of supply to price changes after all technically feasible methods of regulating supply have been used. As far as oranges are concerned, long-term refers to the time it takes for new trees to fully grow-about five years. In some cases, long-term adjustment occurs after the new production plant is completely built and the workers who operate it are trained-generally speaking, this process takes several years.
The short-term supply curve shows how supply responds to price changes when only some technically possible production adjustments are made. Short-term adjustments made by price changes refer to a series of adjustments. Usually the first adjustment is the amount of hired labor. In order to increase production in a short time, enterprises either let workers work overtime or hire more people. In order to reduce production in the short term, enterprises can fire workers or reduce their working hours. Over time, enterprises can make more adjustments, perhaps by training additional workers or buying additional tools and other equipment.
The short-term supply curve inclines to the upper right, because producers can quickly change supply according to price changes. For example, if the price of oranges falls, growers can stop picking oranges and let them grow on trees. Or, if the price rises, they can use more chemical fertilizers and improve irrigation to increase the output of existing fruit trees. In the long run, when a given price goes up, they can plant more trees to increase supply.
Cost of production factors
Generally speaking, if the investment cost of increasing output is small, the supply elasticity is large; On the contrary, the elasticity of supply is small.