Time Affecting The Price Elasticity Of Demand And Supply

There’s A Lot More To A “Market” Than Merely Buying And Selling. A Plethora
Of Activities  Are Undergone Behind Bringing A Product Into The Market. It
Requires Proper Market Research Before Deciding On The Manufacturing Of A
New Product. 

Different Concepts In Economics Explain All These Backstage Happenings Of A

Market. One Such Concept Is Elasticity. 

Elasticity Measures The Sensitivity Of One Economic Variable Against A Change

In Another Economic Variable. We Often Hear About Demand And Supply In
Economics And Also In Elasticity. 

(You Can Also Check Out: What Is Elasticity In Economics And What Are Its
Types). 

The Demand And Supply Of A Product Are Affected By Several Other Factors
Like Price. The Quantity Demanded Of A Product Changes When There Is Either
A Surge Or A Decline In Its Price. This Sensitiveness Of Demand Against A
Change In Price Is Explained By The Price Elasticity Of Demand. 

Time: An Important Determinant of the Elasticity of Supply

Time plays a very important role in the determination of the price elasticity of
supply. Look again at the effect of rent increases on the supply of apartments.
Suppose apartment rents in a city rise. If we are looking at a supply curve of
apartments over a period of a few months, the rent increase is likely to induce
apartment owners to rent out a relatively small number of additional apartments.
With the higher rents, apartment owners may be more vigorous in reducing their
vacancy rates, and, indeed, with more people looking for apartments to rent, this
should be fairly easy to accomplish. Attics and basements are easy to renovate and
rent out as additional units. In a short period of time, however, the supply response
is likely to be fairly modest, implying that the price elasticity of supply is fairly
low. A supply curve corresponding to a short period of time would look

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like S1 in Figure 5.5 "Increase in Apartment Rents Depends on How Responsive
Supply Is". It is during such periods that there may be calls for rent controls.

If the period of time under consideration is a few years rather than a few months,
the supply curve is likely to be much more price elastic. Over time, buildings can
be converted from other uses and new apartment complexes can be built. A supply
curve corresponding to a longer period of time would look like S2 in Figure 5.5
"Increase in Apartment Rents Depends on How Responsive Supply 

If the price of an output increases, and producers have time to adjust supply,
supply will be more elastic. If producers are unable to respond to the price
increase, the supply is inelastic. In the short-run, supply may be inelastic.
However, given more time to respond, elasticity of supply may 

Elasticity Vs Inelasticity
An Inelastic Product Is One That Has A Very Small Effect On The Quantity
Demanded Even If There Is A Significant Price Change. It Can Also Be Said That
The Quantity Demanded For Inelastic Goods Remains Almost Static Or Has No
Effect Of Change In Any Economic Factor. 

Inelastic Products Are Generally Necessity Products. Inelasticity Of Demand

Ensures That There Is An Adequate Supply Of Such Goods. 

Since The Quantity Demanded Is The Same Regardless Of The Price, The Demand
Curve For A Perfectly Inelastic Good Is Graphed Out As A Vertical Line. Such
Goods Have No Good Substitutes, Which Also Ensures The Quantity Demanded
Remains Unaffected.

Price-Demand Curve For Elastic Demand

Manufactures Or Providers Of Inelastic Goods And Services Can Generate Good
Revenue. For Businesses, Revenue Generated From Inelastic Goods Can Go Both
Ways. This Means That It Can Prove Profitable As Well As Marginal. 

In Case Of Price Fall, The Quantity Demanded Remains The Same Resulting
In Less Revenue Generation. While In Times Of Price Hike Businesses Earn
Significant Profits. 

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This Is The Major Benefit Of Inelastic Goods Over Elastic Ones. Manufactures Or
Providers Of Inelastic Goods And Services Can Generate Good Revenue. 

Key Takeaways
Elasticity Of Demand Is Defined As The Measure Of Change In The Quantity
Demanded Of A Good When Other Economic Variables Like Income And Price
Are Changed. 

The Three Known Types Of Elasticity Of Demand Are: Price Elasticity Of

Demand (PED), Cross Elasticity Of Demand (XED), And Income Elasticity Of
Demand (YED)

Throughout The Blog, The Concept Of Price Elasticity Of Demand (PED) Has
Been Focused On. It Is Defined As The Sensitiveness Of The Demand Of A
Commodity Against A Price Change. 

The Formula Given To Calculate The Price Elasticity Of Demand Is

PED Formula

PED = % Change In Quantity Demanded / % Change In Price 

On The Basis Of Results Obtained From The Above Formula, The Price Elasticity
Of Demand Is Categorized As Elastic, Inelastic, Or Unitary.

Inelastic Demand Means That There Is Almost No Effect Of Change In Other

Economic Factors On The Quantity Demanded Of A Good. 

The Price Elasticity Of Demand Is Affected By Many Factors. 5 Crucial Factors

Among Them Are: Availability Of Goods, Price Levels, Income Levels, Time
Period, And Nature Of Goods.

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Long-term and short-term demand elasticity
It can sometimes be difficult to change demand, QdQd start text, Q, d,
end text, in the short run, but it's much easier in the long run.

Let's look at consumption of energy as an example. In the short run, it's

not easy to make substantial changes in energy consumption. Maybe
you can carpool to work occasionally or adjust your home thermostat
by a few degrees if the cost of energy rises, but that is about all you
can do. In the long run, however, you can purchase a car that gets
more miles to the gallon, choose a job that is closer to where you live,
buy more energy-efficient home appliances, or install more insulation
in your home. As a result, the elasticity of demand for energy is
somewhat inelastic in the short run but much more elastic in the long
run.

The diagram below is an example, based roughly on historical

experience, for the responsiveness of QdQdstart text, Q, d, end text to
price changes for crude oil. In 1973, the price of crude oil was $12 per
barrel and total consumption in the US economy was 17 million barrels
per day. That year, the nations who were members of the Organization
of Petroleum Exporting Countries, OPEC, cut off oil exports to the
United States for six months because the Arab members of OPEC
disagreed with US support for Israel. OPEC did not bring exports back
to their earlier levels until 1975—a policy that can be interpreted as a
shift of the supply curve to the left in the US petroleum market.

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Long-term and short-term supply elasticity
On the supply side of markets, producers of goods and services
typically find it easier to expand production in the long run of several
years rather than in the short run of a few months. After all, in the
short run, it can be costly or difficult to build a new factory, hire many
new workers, or open new stores. But over a few years, all of these
things are possible.

Indeed, in most markets for goods and services, prices bounce up and
down more than quantities in the short run, but quantities often move
more than prices in the long run. The underlying reason for this pattern
is that supply and demand are often inelastic in the short run, so that
shifts in either demand or supply can cause a relatively greater change
in prices. But—since supply and demand are more elastic in the long
run—the long-run movements in prices are more muted and quantity
adjusts more easily

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