Elasticity of supply: the behavior of the producer and the buyer

The offer, like demand, is inelastic and elastic. With a sharp increase in the price of a certain product, growth will occur on its supply, as the share in the profit part increases. But in this case, few buyers will want to buy goods at an inflated price. As a result, the sales volume will significantly decrease in comparison with the supply volume. However, if the buyer comparatively quickly reacts to price changes when the volume of demand increases or decreases, then in the supply situation the situation is somewhat different.

The manufacturer does not have time to react to the change, as it takes some time to increase its production. Thus, the supply volume is not so sensitive to price changes in the short term.

To see the described phenomena, use the indicator - the elasticity of the offer, which shows how much the supply volume has changed in percentage terms when the price of the goods has changed by 1 percent. It is believed that other factors affecting the supply remain unchanged.

The greater the elasticity of supply, the more easy it is for the manufacturer to increase the volume of goods produced and then take advantage of the advantage gained from the price increase. With easy availability of resources, an increase in the release of goods can occur even with a slight increase in the price. This suggests that the elasticity of supply is relatively high. With limited production capacity, it will not have elasticity.

The response of the proposal should be taken into account in the long-term and short-term periods. In the near future, the capacity of producers is limited, firms can not quickly adapt existing resources to the changing conditions on the market. In comparison with demand, the supply volume is not so sensitive to price changes. Therefore, in the short run, it is the volume of demand that will be most affected.

The seller's behavior is influenced by the following factors:

- available production capacities: the greater the volume of fixed assets owned by the producer, the higher the supply volume at any price level;

- the prevailing technologies in the world: the emergence of better methods for the production of products creates the opportunity for a cheaper product, which ultimately leads to an increase in the supply regardless of price;

- the cost of production: at existing prices for goods, the change in the cost of resources leads to a decrease or increase in the volume of supply.

Theoretical assumption that the price increase will cause an increase in supply, takes place only under the condition of an ideal market (price elasticity of supply). However, in reality, the anticipation of people's demand for supply will not always cause it to increase. The manufacturer also does not always want to get rid of the deficit and undermine its dominant position in the market. Sometimes an inverse relationship arises between the price and the offer: for example, a decrease in the world level of value for certain types of products causes exporters to increase the offer to maintain their income at the same level. Even with an attractive price, it is not always possible to increase the offer, especially in a short time. There may also be a situation in which the seller can not reduce the offer, even if the price is not favorable.

If the market equilibrium is broken for a long period , this can lead to serious consequences. With a constant increase in the supply of goods, a price reduction will occur, and its production will be carried out until the market price is higher than the costs. There may come a time when it will be unprofitable for some producers to produce certain types of products. In the reverse situation (with the growth of demand), there is a maximum price increase, at which part of the population can not purchase goods.

Absolutely elastic demand describes a situation when, with a reduction in the price, buyers unlimitedly increase the volume of demand, and with a price increase, they start completely rejecting the goods.