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Finance Dictionary and Glossary of Investment Terms
The degree to which a price change for an item results from a unit change in supply. Supply elasticity is equal to percent change in quantity divided by percent change in price. The higher the ratio, the more dramatically the price changes in response to a change in supply. Supply elasticity of a product is usually dependent upon the current supply of that product. At low levels of supply, supply elasticity tends to be high and it becomes less so as supply rises. This is because as supply increases, it becomes more difficult for producers to increase supply further as production approaches full capacity.