The Effects of Supply Shifts on Producers' Surplus: the Case of Inelastic Linear Supply Curves

Abstract

This paper derives sufficient conditions (in terms of supply and demand elasticities) for producers to gain under different supply shifts when supply and demand are specified to be linear functions and supply is inelastic. It is shown that regardless of the type of supply shift, producers lose whenever the sum of absolute values of supply and demand elasticities is less than one, while they gain when production takes place in the elastic portion of the demand. In all other cases arising from alternative elasticity configurations simple formulas developed in this paper may be used to determine the direction of change in producers surplus.