Determinants of Supply Elasticity in Interdependent Markets

This paper draws out the implications of equilibrium in a two-product, two-factor model for elasticity of product supply, which is found to depend upon input supply elasticities, alternative product demand elasticity, elasticity of substitution between production inputs, relative factor intensity of the product, and relative importance of the product in its use of resources. These factors interact in a complex manner to determine supply elasticity. The author discusses related approaches of Buse, Muth, and Powell and Gruen, and considers several simplified examples in an attempt to provide an intuitive grasp of the workings of the model.