Question

You have noticed that the price of tickets to your university's basketball games keeps increasing but the supply of tickets remains the same. Why might supply be unresponsive to changes in price?

Short answer

Supply remains unresponsive due to fixed seating capacity and short-run constraints.

Step-by-step solution

Define Supply Elasticity

Supply elasticity refers to how much the quantity supplied of a good responds to a change in price. When supply is inelastic, it means that the quantity supplied is not very responsive to changes in price.

Consider Resource Constraints

The number of seats in a basketball stadium is limited. Therefore, no matter how high the price goes, the stadium cannot supply more tickets because the number of seats does not increase.

Analyze Short-Run Inflexibility

In the short run, physical and logistical constraints prevent any increase in the supply of tickets because infrastructures like stadium size cannot be changed quickly.

Determine Influence of External Factors

Factors such as regulatory limits (fire codes, legal limitations) can also restrict the number of tickets available regardless of price increases.

Key concepts

Inelastic Supply

When we talk about inelastic supply, we're referring to a situation where the quantity of a good that can be supplied doesn't change much even if the price of the product changes significantly. This concept is crucial to understanding why some products or services don't see an increase in quantity available, despite high demand and rising prices.

• Definition: Inelastic supply means supply doesn't respond to price changes.
• Implication: Potential revenues could be missed if supply cannot meet demand.

An example of inelastic supply can be seen in sports events, like university basketball games, where there are only so many tickets available due to fixed seating capacities. The availability of these tickets isn't easily adjusted, making the supply inflexible within typical market responses.

Resource Constraints

Resource constraints are one of the most prominent reasons for inelastic supply. They relate to the limited factors of production which can restrict the amount of a product or service available.

• Consider the physical resources, like the number of seats in a stadium.
• Constraints are often fixed in the short term, limiting supply flexibility.

In the case of a basketball game, the number of seats in the stadium forms a hard cap on the number of tickets that can be sold. Even if there's a surge in demand, more tickets can't suddenly appear because existing resources (seats) remain unchanged. These constraints help explain the limited response in supply seen despite rising prices.

Short-Run Inflexibility

Short-run inflexibility refers to the difficulty of altering production or supply levels quickly in response to changes in market conditions. This inflexibility can be due to several practical limitations that are hard or impossible to change overnight.

• Physical infrastructures take time to modify or expand.
• Planning and implementing changes require substantial time and resources.

Using the example of a basketball stadium again, it's easy to see where short-run inflexibility applies. Altering the stadium size or finding alternative venues cannot happen quickly to meet short-term increases in demand. Thus, even if tickets become more expensive due to high demand, the supply remains restricted by these inflexible factors.

External Factors

External factors are influences that can limit supply beyond physical or logistical constraints, often involving regulations and legal restrictions. These factors can affect the number of goods or services that can be offered, regardless of changes in demand or price.

• Regulations such as fire codes can limit the number of people allowed in a venue.
• Zoning laws and other legal conditions might prevent expansion or additional supply options.

In our basketball game scenario, external factors like legal limits on crowd sizes play a crucial role. Authorities might impose these restrictions to ensure safety and comply with legal standards, preventing additional tickets from being sold no matter how profitable they may be at higher prices. These constraints are an essential component in understanding inelastic supply in specific scenarios.