Price Elasticity of Supply Score
A Price Elasticity of Supply Score is a price elasticity score for a price elasticity of supply measure (that ranks the relationship between change in quantity supplied and change in price).
- AKA: Elasticity of Supply Value.
- Context:
- It can range from being a Supply Elastic/Elastic Supply Score (such as nuclear power) to being an Inelastic Supply Score/Supply Inelastic (such as firms operating below full capacity)).
- It can range from being a Short-Run Price Elasticity of Supply Score to being a Long-Run Price Elasticity of Supply Score.
- Example(s):
- It was between 1.5 and 4, (long run) for Supply of Housing in the U.S. (Green et al., 2005).
- It was ~7.0 (long run) for Tobacco Supply in the U.S..
- a Labor Supply Elasticity Score.
- …
- Counter-Example(s):
- See: Price Inelastic, Price Elastic.
References
2015
- (Wikipedia, 2015) ⇒ http://en.wikipedia.org/wiki/Price_elasticity_of_supply#Selected_supply_elasticities Retrieved:2015-4-27.
2005
- (Green et al., 2005) ⇒ Richard K. Green, Stephen Malpezzi, and Stephen K. Mayo. (2005). “Metropolitan-Specific Estimates of the Price Elasticity of Supply of Housing, and their Sources.” In: American Economic Review.
- QUOTE: Many reviews of housing economics (and most of the papers on the subject) have noted that, relative to many other aspects of market behavior, housing supply is under-studied. Surveys by Quigley (1979), Olsen (1987) and Smith, Rosen and Fallis (1988), to give but three examples, make this point. The market for research is in turn responding; for example see the recent special issue of the Journal of Real Estate Finance and Economics devoted to housing supply (Rosenthal, 1999), and especially the review by DiPasquale (1999). Despite these advances, the literature is best described as thin, especially relative to the acknowledged importance of the topic; and despite some recent advances there is no firm consensus on the nature of housing supply. A good example is the recent literature on the influence of the federal tax code on housing (Cappoza, Green and Hendershott (1996, 1999), Gravelle (1996), Holz-Eakin (1996)). CGH view housing as a good that is inelastically supplied, while Gravelle and Holz-Eakin view housing as an elastically supplied good. These studies highlight, first, that fundamental supply parameters underpin important policy issues, and second, that there is not yet consensus on these parameters.
One characteristic of housing supply that makes housing unusual is that the short-to-medium run supply curve for housing embeds a fundamental asymmetry, and can probably best be viewed as kinked. When housing demand falls, the market cannot easily adjust the supply of housing downward (because housing is so durable). On the other hand, absent constraints on land supply, the market should be able to largely absorb increases in demand via supply. Of course, it has been the case recently that the strong national market for new construction has led to material and labor shortages that have, in turn, driven up prices of materials and labor. That suggests that housing supply is not perfectly elastic in the face of increased demand, at least in the short run. Still, we would expect that in the absence of land-supply constraints, the speed of adjustment (in the DiPasquale-Wheaton (1994) sense) of markets to upward shifts in demand is faster than it is to downward shifts in demand.
An assumption of imperfect elasticity is supported by (for example) Blackley (1999), Kearl (1979), Schwab (1983), Topel and Rosen (1988) and Poterba (1991), who find that at the national level, the price elasticity of supply is between 1.5 and 4. In a paper that ties econometric modeling to urban theory, Mayer and Somerville (1999) on the national level find housing supply to be even last elastic than their predecessors. On the other hand, Muth (1960), Follain (1979), and Malpezzi and Maclennan (1996) find much higher elasticities, with point estimates as high as 20.
- QUOTE: Many reviews of housing economics (and most of the papers on the subject) have noted that, relative to many other aspects of market behavior, housing supply is under-studied. Surveys by Quigley (1979), Olsen (1987) and Smith, Rosen and Fallis (1988), to give but three examples, make this point. The market for research is in turn responding; for example see the recent special issue of the Journal of Real Estate Finance and Economics devoted to housing supply (Rosenthal, 1999), and especially the review by DiPasquale (1999). Despite these advances, the literature is best described as thin, especially relative to the acknowledged importance of the topic; and despite some recent advances there is no firm consensus on the nature of housing supply. A good example is the recent literature on the influence of the federal tax code on housing (Cappoza, Green and Hendershott (1996, 1999), Gravelle (1996), Holz-Eakin (1996)). CGH view housing as a good that is inelastically supplied, while Gravelle and Holz-Eakin view housing as an elastically supplied good. These studies highlight, first, that fundamental supply parameters underpin important policy issues, and second, that there is not yet consensus on these parameters.