Price Elasticity of Supply for GOLD

Just like demand, supply of goods also responds to price changes. The degree of price elasticity of supply depends on opportunity cost, time element, storability and variety of uses. But, for gold's price elasticity of supply is depending on the time element. 

There are 3 periods of price elasticity of supply and one of it is related to gold which is Market Period. It refers to period that occurs when the time immediately after a change in market price is too short for producers to respond with a change in quantity supplied. The time period is too short for producers to supply more or less quantity of goods as a respond to price change of goods. 

Graph 1 shows the price elasticity of gold where changes in price cause only a small change of quantity supplied. In other words, the changes in quantity supplied is smaller than changes in price of goods supplied. This is due to insensitivity of quantity supplied to changes of price of gold.

Unlike demand, as demand rises the price will also rise up. For supply, the rises in quantity of goods supplied will lower the price of goods and vice versa. When more and more quantity of goods are being produced, the price of the goods will eventually decline. As production of gold is expensive and time consuming, it would be quite hard for quantity gold supplied to increase. Thus, the price of gold will either remain expensive or rise up. This explain clearly about the inelastic supply of gold.

Please refer Inelastic Gold Supply to know more and get a better understanding :)