Supply response: the change of output quantity in response to other shocks.
Supply response: PE vs GE
In PE: supply responses to the change in output price
A common PE assumption:
- all inputs are perfectly mobile
- input price are exogenously set
- perfectly elastic supply
- output price determined by unit cost
- Supply response is tied down only by economy-wide factor endowment constraint
In neoclassical GE model, if one input is less than perfectly mobile (for example land in GTAP model), then supply elasticity (response) is influenced by :
- Mobility of factor (fixed, sluggish and perfectly mobile).
- Technology: ability to substitute away from the fixed or sluggish factor
Difference of GE and PE on supply side
- In GE, we consider the endowment of factors. When supply is higher, we use more inputs but inputs are finite. In that case, the supply curve for GE would be downward then PE.
Some special cases
Case 1: single, fixed input
Consider a short run model where capital is immobile across uses
In that case, there are as many kinds of capital (and each has a specific capital rent rate) as the number of sectors in the model.
When one factor is in fixed supply, supply response is governed by the industry's ability to substitute away from that factors: 
- = 0: the industry's supply of output is necessarily fixed.
- [My understanding: Leontief production function, when one input is fixed, the output is also fixed]
- Larger : larger supply response.
Case 2: single, sluggish input
sluggish input: the input that is not fixed, but also not fully mobile across sectors, so its use is still responsive to sector specific input price change
- for example: skilled labor, capital or land
When we permit some mobility to make a fixed input to be sluggish input, we added a term to show the responsiveness of the scarce input to its own price.
For own-use sector (output) (the sector uses its own input in production), the larger cost share of the own output, the smaller the supply response is.