2.3.5—PES and firm response speed

The speed and ease with which firms can change output determine how responsive supply is to a price change. Spare capacity, stocks, flexible inputs and easy entry raise PES.

A perishable crop or a fully occupied factory may be inelastic in the short run; storage, overtime or new firms can make the response more elastic later.

Concert seats available tonight are fixed, but a manufacturer can expand output over months by hiring and installing equipment.

A firm’s ability to change price is not the issue in PES; the issue is how quickly it can change quantity supplied.