What does it mean if price elasticity of supply equals 0?

1 Answer
Nov 23, 2015

Answer:

It means the supplied quantities do not change when the price increases. This is called a perfectly inelastic curve.

Explanation:

The elasticity measures the change in quantities that result from a change of 1% in price. When it is equals to zero, it means that, when price increases, supplies quantities do not increase or decrease. They simply don't react to price!
It is as if all companies were operating at full capacity and none could invest in the short run. That way, if the market forces cause an increase in price, the supplied quantities do not increase, as no company can make investments to increase production.
In a graph, the supply curve would completely vertical. This fact is called a perfectly inelastic curve.