As we saw in Chapter 8 , when the price of one factor rises, a profit-
maximizing firm will substitute away from the factor whose price has
risen and toward a cheaper factor. The ease with which this substitution
can take place affects the elasticity of demand for the factor whose price
has increased. For example, a clothing manufacturer may be able to
adjust its designs and easily switch between fabrics as their prices change.
In contrast, a firm producing aluminum will find it difficult to substitute
any other factors for its two primary inputs, bauxite and electricity. The
clothing firm’s elasticity of demand for its factors of production will be
much greater than that of the aluminum producer.