Perfectly Inelastic Supply

Rahul Thadani Feb 8, 2019
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Here is some basic information about perfectly inelastic supply, and what it means from the point of view of a seller.
In the world of economics, the forces of demand and supply play a large role in determining the way certain goods and services are priced.
These forces of demand and supply act in conjunction with each other, and a change in one of the factors inadvertently affects the other one. This is where the concept of elasticity arises from. Further, you will understand the concept of perfectly inelastic supply.

Basics

The elasticity of supply is its ability to change when the surrounding market forces change. If other forces lead to a drastic change in supply, then it is deemed more elastic, but if it is relatively unaffected it is known as inelastic supply. No matter how significantly demand or price factors change, the amount of supply will continue to be the same.
When one studies demand and supply curves on a graph and the law of supply and demand, the demand curve goes from left to right and the supply curve goes from right to left. The X-axis denotes the quantity of a good or a service and the Y-axis denotes the price.
The point at which the demand curve and the supply curve meet is known as the Point of Equilibrium, and this denotes the amount of good that can be bought for the corresponding price.
When we speak of perfectly inelastic supply, the curve is a straight line that is parallel to the Y-axis. No matter what the price and no matter what the demand at any given moment in time, the amount of the goods or service that is supplied will be exactly the same. Hence, the supply is completely inelastic and unresponsive to any changes in other factors.

An Example

If the quantity that is supplied does not change at all, then this means that the producers or sellers of the good have no choice, but to produce or sell it at any price possible. This occurs in the case of goods that have a large number of substitutes available in the market. Hence, the seller is forced to sell, even if he has to undergo a loss by doing so.

Example 1

The best example is to imagine a situation where a very famous deceased painter has created three masterpieces and these need to be sold. Now, since the painter is dead, there are no forces of demand or price that can change the supplied quantity. No matter how much money a buyer is willing to pay, the supply for the paintings will be fixed at 3.

Example 2

Another example is to consider a scenario where a farmer has to sell 100 tomatoes. These tomatoes need to be sold by the end of the day or else they will become rotten and the farmer will just have to throw them away.
Thus, as the day goes by, the farmer will get more and more desperate to sell the tomatoes irrespective of what price they sell for. Hence, the supply at the end of the day is the same, no matter what the price and the demand will be. The same scenario can also be applied to a florist who has to sell his flowers before they wilt.
The field of economics is not a simple one, and the concept of demand and supply curves is much more complicated than this. There are a number of other factors that affect the elasticity of supply as well, and this is something that will require careful study and research.