microeconomics, elasticityExplain this statement:
In the long run, the elasticity of supply is infinite.
Please assume that in the short run, the elasticity of supply is finite.
Elasticity of supply (by default, we assume that’s with respect to price) is defined as the percentage change in quantity supplied, divided by the respective percentage change in price.
An infinite elasticity of supply means that a change in the quantity supplied, will not change the price - the supply of the goods is perfectly elastic. That is to say, the supply curve is horizontal, at the point or in the range of interest.
Clearly, in a finite world, no good or service can be perfectly elastic across all conceivable quantities. However, it is possible that a good or service does, in the long term, have infinite elasticity of supply across a wide range of quantities that might occur in practice.
That’s a fun economic statement.
I’d say that the statement makes the most sense if you consider the elasticity of supply to be FINITE in the short-run. An infinite elasticity of supply in the short-run means that you can produce any amount of a good at a constant price. Generally, we believe elasticities of supply in the short-run are NOT infinite since eventually costs would go up.
You’re probably already familiar with the idea that elasticities are greater (in absolutely value) in the long-run then short-run. Simply put, you can make more adjustments given a longer time horizon (e.g., finding better substitutes, alternative suppliers).
The statement that “in the long run, the elasticity of supply is infinite” refers to the fact that firms can make many adjustments in the long run so that they probably could produce an almost unlimited quantity of a good given a long enough time horizon (at marginal cost if you assume perfect competition.
Here also is a link that probably has an even better explanation: http://dotlearn.com/topics/Economics/1040/content/index.shtm?page=2
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