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In my economics book*, in the lesson explaining what price elasticity of supply is, it's written:

In reality, supply curves are likely to be non-linear, so will have a different PES value at different points. Supply is more elastic at lower prices and more inelastic at higher prices.

Why supply is more elastic at lower prices and more inelastic at higher prices? Doesn't an increase in price mean more suppliers will be able to join the market?

So not only supply will increase when demand gets higher— due to old suppliers increasing their supply— but because of the new supply added by new suppliers too.

Please note that the cases shown in this picture are said by the author to be theoretical. The more likely cases where shown in another page as straight inclined lines

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  • $\begingroup$ "Why supply is more elastic at lower prices and more inelastic at higher prices?" Can you please support this statement with a source? Also, are you talking about market supply or the supply of an individual firm? $\endgroup$
    – Giskard
    Aug 20, 2021 at 20:09
  • $\begingroup$ "Doesn't an increase in price mean more suppliers will be able to join the market?" Can you please explain why you think this has a connection with elasticity? $\endgroup$
    – Giskard
    Aug 20, 2021 at 20:09
  • $\begingroup$ I feel in general, @Manar means that elastic supply is associated with no shortages of a good, whereas goods with inelastic supply are prone to shortages (and thus a higher price). I don't think Manar means that supply elasticity is generalisable to all lower prices, and supply inelasticity is generalised to all higher prices. It is not about the level of price, but how supply (in) elasticity affects the price. $\endgroup$
    – EB3112
    Aug 20, 2021 at 22:30
  • $\begingroup$ @EB3112 "Search your feelings. You know it to be true" is great in movies! On SE's it is better that the OP clarifies. If you are interested in the answer to your question, feel free to post it though! $\endgroup$
    – Giskard
    Aug 21, 2021 at 7:21
  • $\begingroup$ Reasonably belligerent comment @Giskard there. A vacuous quote, followed by emboldened instructions. Comment sections are for comments. I therefore commented with an interpretation of his point. It's Manar's role to tell me if my interpretation is misguided, precisely as you said. $\endgroup$
    – EB3112
    Aug 21, 2021 at 9:13

1 Answer 1

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Your question is: "Why supply is more elastic at lower prices and more inelastic at higher prices?". Reasons for changes in elasticity can be plentiful (e.g. substitutes, capacity). In this case, it is helpful to think of capacities.

When a firm produces low quantities it generally has large capacities. This means that a price increase will incentivise the firm to increase the quantity it supplies. If the firm already produces a lot, there a not so many capacities left. Even if the price of the good increases it will not be able to increase output as much as it was able to when it produced less. Therefore, the price elasticity of supply is lower as you move up the curve.

I hope this helps!

Also:

"Doesn't an increase in price mean more suppliers will be able to join the market?"

No, this is not generally true! Whether new firms can join the market depends on other factors. They might want to join the market when price increases because they think they can make profit but, e.g. huge necessary investments, monopolies can inhibit them from doing so.

Another comment:

Actually, I think, (contrary to what your book says) also linear supply curves should have different elasticities as the elasticity is not the slope.

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  • $\begingroup$ Your answer is amazing, thank you! But I think that even though elasticity isn't the slope, it's very similar to it. It's like the inverse of the slope. The slope= ∆y/∆x. The elasticity= %∆x/%∆y. I mean if scientists didn't decide to put the ∆ of y-axis in the numerator and put it in the dominator they'd have been almost the same. And for the %∆ in economy and not just ∆ I think it's because it's more conventional due to the large numbers we'll be dealing with in the demand compared to the price. If we just used ∆price and quantity demand we would either end up with very small or big numbers. $\endgroup$
    – Manar
    Aug 22, 2021 at 19:56
  • $\begingroup$ Glad that it helped. As to the difference between slope and elasticity, you are right they are indeed very similar. I would suggest thinking about it this way: The slope gives you the absolute change and the elasticity the relative (percentual) change. Economists use elasticity because it is especially helpful when comparing two curves. $\endgroup$
    – Marta
    Aug 22, 2021 at 22:13

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