A fundamental characteristic of any market for ambulance services, no matter where it is located, is limited supply. For example, it would have been much harder to charge Kira Mills $1,772.42 for a 15-minute ride to the hospital if there had been many ambulance providers cruising nearby and offering a lower price. But there are good economic reasons why there are not: who among those experiencing a true health emergency would trust their health and safety to a “low-price” ambulance? And who would want to be a supplier, paying the expense of providing quality ambulance services, without being able to charge high prices to recoup costs? Not surprisingly, then, in most locations there is only one ambulance provider available, as we have seen.

In sum, a critical element in the ability of ambulance providers to charge high prices is limited supply: a low responsiveness in the quantity of output supplied to the higher prices charged for an ambulance ride. To measure the response of ambulance providers to price changes, we need a measure parallel to the price elasticity of demand—the price elasticity of supply, as we’ll see next.