What makes supply elastic or inelastic

For inelastic demand, the overall supply and demand of a product is not substantially impacted by an increase in price. Products that are usually inelastic consist of necessities like food, water, housing, and gasoline. Whether or not a product is elastic or inelastic is directly related to consumer needs and preferences. If demand is perfectly inelastic, then the same amount of the product will be purchased regardless of the price. Economists study elasticity and use demand curves in order to diagram and study consumer trends and preferences.

An elastic demand curve shows that an increase in the supply or demand of a product is significantly impacted by a change in the price. An inelastic demand curve shows that an increase in the price of a product does not substantially change the supply or demand of the product.

Inelastic Demand : For inelastic demand, when there is an outward shift in supply and prices fall, there is no substantial change in the quantity demanded. Elastic Demand : For elastic demand, when there is an outward shift in supply, prices fall which causes a large increase in quantity demanded. Privacy Policy. Skip to main content. Elasticity and its Implications. Search for:. Price Elasticity of Supply. Definition of Price Elasticity of Supply The price elasticity of supply is the measure of the responsiveness in quantity supplied to a change in price for a specific good.

Learning Objectives Differentiate between the price elasticity of demand for elastic and inelastic goods. Practice: Price Elasticity of Demand and its Determinants. Perfect inelasticity and perfect elasticity of demand.

Constant unit elasticity. Total revenue and elasticity. More on total revenue and elasticity. Elasticity and strange percent changes. Elasticity of supply is a measure of a producer's ability to cope effectively with changes in demand.

A number of factors can affect it. The price of any product or service also is elastic or inelastic in relation to its supply. This is determined by measuring the percentage change in its supply and the percentage change in its price over a period of time. Dividing the change in supply by the change in price results in a numerical value.

If that number is more than one, the product shows price elasticity. If it is less than one, the product is inelastic. Technology innovation can reduce supply elasticity. More efficient production reduces costs and allows for expanded production. If supply is elastic, so is price. A greater supply of a product or service reduces its cost. A scarcer supply forces prices up. The most notorious example of price elasticity may be seen in the price of gasoline at the pump. In , demand for fuel soared worldwide, with big increases in developing nations like China.

With increases in production and inventories, prices fell off a cliff. The price of gasoline is elastic. That is, consumers must buy it no matter what the price is.

Bitcoin solved this problem by fixing the supply to a maximum of about 21 million Bitcoins. These Bitcoins are created by a mining procedure of solving cryptographic puzzles that yields fewer and fewer Bitcoins per unit of time. It is estimated that all 21 million Bitcoins will have been created by the year In , there were almost 19 million Bitcoins, which means that only slightly more than 2 million Bitcoins will be mined in the next years. This means that, for all practical purposes, the supply of Bitcoin is fixed.

The supply of Bitcoin is almost perfectly inelastic. Indeed, the supply of Bitcoin is perfectly inelastic since changes in demand has no effect on the supply quantity, even though Bitcoin mining is slowly creating new Bitcoins. Whether the supply of Bitcoins is increasing or decreasing is difficult to ascertain, since many Bitcoins are lost because they were sent to the wrong address or because the owners lost their crypto keys. The number of Bitcoins lost may exceed the number being created, in which case, the supply may decline.

Thus, supply inelasticity can be more accurately defined as a supply that does not change in response to demand , even if the supply does change for other reasons. Bitcoin is a perfect example of this. Its supply is slowly changing through mining, but it is not in response to demand.

Thus, the supply of Bitcoin is perfectly inelastic.