What is “Zero Elastic Supply” and what are its effects on the economy?
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To begin, elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. [Kindly note that supply and price are two of three major market forces (third is demand) that drive any given economy.]
Elasticity in general refers to responsiveness in changes that occurs, whether in cases of demand or supply.
Price Elasticity of Supply (PES) is said to be inelastic when it’s less than one, elastic when greater than one, unit elastic when it’s one, and ZERO ELASTIC when elasticity equals zero. A supply of zero elasticity means that supply is ideally “fixed” and does not respond to a change in price whether positively or negatively. Supply does not increase or decrease even if price does, it remains constant. Zero Elastic goods/commodities cannot be expanded or are not produced and is void of labour in most cases (one of the major factors of production).
For example, the supply of land does not change. Land remains fixed in quantity supplied irrespective of the changes in price; it does not requires labour for production and cannot be expanded.
The effects on the economy of Zero Elastic goods? It is in the short run and cannot be expanded in quantity. Supply in general is said to be in the long run due to its ability to either increase or decrease in returns to scale as it relates to prices and demand. No matter how high demand goes for zero elastic products, they can’t be expanded or supplied more, their value only increase and vice versa.