Definition
- Spare capacity
- Spare capacity is machinery, space and labour a firm already has but is not fully using, so output can rise without building anything new.
Example
Can you think of an example of spare capacity?
The price of bread rises 10 per cent. A bakery with ovens standing idle in the afternoons bakes 25 per cent more within a week: an elasticity of 2.5, elastic.
Test yourself
Can you name the four determinants of price elasticity of supply?