The price elasticity of the supply of a port service (ES) expresses the degree of responsiveness (sensitivity) of the quantity of a port service supplied to a change in its price within a specific market:
ES=(Δq/q)(Δp/p)=Δq⋅pΔp⋅qES=(Δp/p)(Δq/q) =Δp⋅qΔq⋅p
Where:
- ES = Price elasticity of supply of a port service
- q = Quantity supplied
- p = Price of the service
- Δq = Change in the quantity of services supplied
- Δp = Change in the price
The elasticity of supply for a port service is always positive, as there is a positive percentage change in the quantity supplied for every percentage change in the price of the service offered:
- Relatively inelastic supply (0 < ES < 1): a change in the price of the service results in a change in the quantity supplied in the same direction but by a proportionally smaller percentage.
- Relatively elastic supply (1 < ES < ∞): a change in the price of the service results in a change in the quantity supplied in the same direction but by a proportionally greater percentage.
- Perfectly elastic supply (ES = ∞): any change in price leads to an unlimited change in the quantity of the port service supplied.
- Perfectly inelastic supply (ES = 0): a change in price results in no change at all in the quantity of the port service supplied.
The price elasticity of the port service supply varies according to the time horizon under consideration. Based on the reference period, it is useful to distinguish between three different types of elasticity:
- Instantaneous elasticity (perfectly inelastic)
- Short-run elasticity (relatively inelastic)
- Long-run elasticity (more elastic)
For either technical and operational reasons (such as the absence of available alternatives for port users, the use of the service as part of a wider set of services or supply chains, or the existence of scheduled sailings and ship calls at the port), or due to institutional constraints (for example, the considerable time required to design, construct, and operate new port infrastructure), the instantaneous supply of port services tends to be perfectly inelastic.
- The instantaneous supply curve of the port service is shown in Figure (Si): in the event of a possible price increase from P1 to P2, the quantity supplied remains unchanged.
- In the short run, the supplied quantity of a port service may change. Over time, the service provider can implement organizational improvements and/or reallocate the use of production factors, thereby increasing the quantity supplied to take advantage of higher prices. The short-run supply curve of the port product (SΒSΒ’) thus tends to be relatively inelastic: in the case of a possible price increase from P1 to P2, the quantity supplied increases from Q1 to Q2.
- In the medium and especially the long run, the supply of port services can adjust more significantly (SL). The port service providers may undertake investments to expand productive capacity (e.g., purchasing new equipment, constructing or upgrading infrastructure, or increasing the capacity of the port or its terminals). Consequently, the long-run supply elasticity of the port product tends to be more elastic.